1
Secured TransactionsAssignment 32
Secured Creditors against Secured Creditors
2
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 time: (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
3
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 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
4
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 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
5
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors: PMSI §9-324(a) Security interest
Priority time: The earlier of perfection or filing
The earlier of: perfection or filing
(perfection is the last of three attachment requirements and the perfection requirement)
The Priority Rules
6
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors: PMSI §9-324(a) Security interest
Priority time: The earlier of perfection or filing
But PMSI always wins if perfected when debtor receives possession or within 20 days
The earlier of: perfection or filing
(perfection is the last of three attachment requirements and the perfection requirement)
The Priority Rules
7
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors: PMSI Sellerwho perfected within 20 days
§9-324(g) PMSI Lender who perfected within 20 days
Priority time: The earlier of: perfection or filing
The Priority Rules
8
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors: PMSI Sellerwho perfected within 20 days
§9-324(g) PMSI Lender who perfected within 20 days
Priority time: Seller wins The earlier of: perfection or filing
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?
Competitors: PMSI Lender who perfected within 20 days
§9-324(g)
§9-322(a)
PMSI Lender who perfected within 20 days
Priority time: The earlier of: perfection or filing
The Priority Rules
10
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors: PMSI Lender who perfected within 20 days
§9-324(g)
§9-322(a)
PMSI Lender who perfected within 20 days
Priority time: The earlier of: perfection or filing
The earlier of: perfection or filing
The Priority Rules
11
9-317(e). If a person files a financing statement with respect to a purchase-money security interest
Priority Rule: PMSI versus Lien Creditor, §9-317(e)
PMSIFiling
Lien creditor
12
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery
20 day grace
Priority Rule: PMSI versus Lien Creditor, §9-317(e)
PMSIFiling
Lien creditor
13
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery . . . the security interest takes priority over the rights of a . . . lien creditor
20 day grace
Priority Rule: PMSI versus Lien Creditor, §9-317(e)
PMSILien creditor
Filing
Lien creditor
14
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery . . . the security interest takes priority over the rights of a . . . lien creditor which arise between the time the security interest attaches and the time of filing.
20 day grace
Priority Rule: PMSI versus Lien Creditor, §9-317(e)
PMSILien creditor
Filing Attachment
Lien creditor
15
Possession 20 day grace
Priority Rule: PMSI versusSecurity Interest, §9-324(a)
PMSIFiling
SI
§9-324(a). A perfected purchase-money security interest in goods . . . has priority over a conflicting security interest in the same goods . . . if the purchase money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
16
Possession
§9-324(a). A perfected purchase-money security interest in goods . . . has priority over a conflicting security interest in the same goods . . . if the purchase money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
20 day grace
Priority Rule: PMSI versusSecurity Interest, §9-324(a)
PMSISI
Filing
Filing
17
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery . . . the security interest takes priority over the rights of a . . . lien creditor which arise between the time the security interest attaches and the time of filing.
20 day grace
PMSILien creditor
Filing
Possession
§9-324(a). A perfected purchase-money security interest in goods . . . has priority over a conflicting security interest in the same goods . . . if the purchase money security interest is perfected when the debtor receives possession . . . or within 20 days thereafter.
20 day gracePMSISI
Filing
18
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery . . . the security interest takes priority over the rights of a . . . lien creditor which arise between the time the security interest attaches and the time of filing.
20 day grace
PMSILien creditor
Filing
Possession
§9-324(a). A perfected purchase-money security interest in goods . . . has priority over a conflicting security interest in the same goods . . . if the purchase money security interest is perfected when the debtor receives possession . . . or within 20 days thereafter.
20 day gracePMSISI
Filing
19
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery . . . the security interest takes priority over the rights of a . . . lien creditor which arise between the time the security interest attaches and the time of filing.
20 day grace
PMSILien creditor
Filing Attachment
Levy
Possession
§9-324(a). A perfected purchase-money security interest in goods . . . has priority over a conflicting security interest in the same goods . . . if the purchase money security interest is perfected when the debtor receives possession . . . or within 20 days thereafter.
20 day gracePMSISI
Filing
Filing
20
Delivery
9-317(e). If a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery . . . the security interest takes priority over the rights of a . . . lien creditor which arise between the time the security interest attaches and the time of filing.
20 day grace
PMSILien creditor
Filing Attachment
Levy
Possession
§9-324(a). A perfected purchase-money security interest in goods . . . has priority over a conflicting security interest in the same goods . . . if the purchase money security interest is perfected when the debtor receives possession . . . or within 20 days thereafter.
20 day gracePMSISI
Filing
Filing
Levy
21
SA and FS2009 covers
Debtor’s “equipment”
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Debtor
Secured 1
22
SA and FS2009 covers
Debtor’s “equipment”
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Debtor
Secured 1
Reservation of priority against other lenders against the collateral.
23
SA and FS2009 covers
Debtor’s “equipment”
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1 SA and FS2012 coversAnother’s
“equipment”
Reservation of priority against other lenders against the collateral.
24
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1
Sale(unauthorized)
SA and FS2012 coversAnother’s
“equipment”
SA and FS2009 covers
Debtor’s “equipment”
Reservation of priority against other lenders against the collateral.
25
Sale(unauthorized)
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1 SA and FS2012 coversAnother’s
“equipment”
SA and FS2009 covers
Debtor’s “equipment”
Reservation of priority against other lenders against the collateral.
26
Sale(unauthorized)
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1
§9-322(a)(1). Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . .
SA and FS2012 coversAnother’s
“equipment”
SA and FS2009 covers
Debtor’s “equipment”
27
Sale(unauthorized)
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1
§9-322(a)(1). Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . .
Secured 1 appears to win!
SA and FS2012 coversAnother’s
“equipment”
SA and FS2009 covers
Debtor’s “equipment”
28
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1
§9-322(a)(1). Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . .
Secured 1 appears to win!
But if Secured 1 wins, Secured 2 won’t lend. Unauthorized sale would take Secured 1’s priority.
SA and FS2012 coversAnother’s
“equipment”
SA and FS2009 covers
Debtor’s “equipment”
29
Sale(unauthorized)
§9-325(a). [Notwithstanding § 9-322(a) and 9-324] a security interest created by a debtor is subordinate to a security interest in the same collateral created by another person if:
(1) The debtor acquired the collateral subject to the security interest created by the other person;
(2) The security interest created by the other person was perfected when the debtor acquired the collateral . . .
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
Another Debtor
Secured 2 Secured 1 SA and FS2012 coversAnother’s
“equipment”
SA and FS2009 covers
Debtor’s “equipment”
30
Problem 32.1, page 531 Bank1files
Aug 1
31
Problem 32.1, page 531 Bank1files
Aug 1
Bank2 filesSA, lends
Aug 5
32
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank2 filesSA, lends
Aug 5 Aug 7
33
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
34
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins?
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
35
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
36
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins?
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
37
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins? Bank2, perfected before C-Dogs levied. §9-317(a)(2).
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
38
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins? Bank2, perfected before C-Dogs levied. §9-317(a)(2).
C-Dogs versus Bank1. Who wins?
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
39
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins? Bank2, perfected before C-Dogs levied. §9-317(a)(2).
C-Dogs versus Bank1. Who wins? C-Dogs, levied before Bank 1 perfected or filed and complied with §9-203(b)(3).
Who is first?
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
40
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins? Bank2, perfected before C-Dogs levied. §9-317(a)(2).
C-Dogs versus Bank1. Who wins? C-Dogs, levied before Bank 1 perfected or filed and complied with §9-203(b)(3).
Who is first?
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
41
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins? Bank2, perfected before C-Dogs levied. §9-317(a)(2).
C-Dogs versus Bank1. Who wins? C-Dogs, levied before Bank 1 perfected or filed and complied with §9-203(b)(3).
Who is first? “Circularity of liens.”
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
C-Dogs
Bank1Bank2
42
C-DogsLevies
Problem 32.1, page 531 Bank1files
Aug 1
Bank1 versus Bank2. Who wins? Bank1, filed before Bank2 filed or perfected. §9-322(a)(1).
Bank2 versus C-Dogs. Who wins? Bank2, perfected before C-Dogs levied. §9-317(a)(2).
C-Dogs versus Bank1. Who wins? C-Dogs, levied before Bank 1 perfected or filed and complied with §9-203(b)(3).
Who is first? “Circularity of liens.”
Key: Bank1 has two priority dates
Bank1SA, lends
Bank2 filesSA, lends
Aug 5 Aug 7 Aug 10
C-Dogs
Bank1Bank2
43
Centurion lends to Airco, perfects in flight simulation equipment, including after acquired.
Problem 32.2, page 531 Centurion lendsto Airco, perfects
Mar 21
44
Centurion lends to Airco, perfects in flight simulation equipment, including after acquired.
Firstbank lends to FlightCo, perfects in flight simulation equipment, including after acquired.
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21
Centurion lendsto Airco, perfects
Mar 21
45
Centurion lends to Airco, perfects in flight simulation equipment, including after acquired.
Firstbank lends to FlightCo, perfects in flight simulation equipment, including after acquired.
FlightCo sells MD-80 flight simulation equipment to Centurion in an unauthorized sale.
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
46
Centurion lends to Airco, perfects in flight simulation equipment, including after acquired.
Firstbank lends to FlightCo, perfects in flight simulation equipment, including after acquired.
FlightCo sells MD-80 flight simulation equipment to Centurion in an unauthorized sale.
a. Who is first in the MD-80 flight simulation equipment?
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
47
Centurion lends to Airco, perfects in flight simulation equipment, including after acquired.
Firstbank lends to FlightCo, perfects in flight simulation equipment, including after acquired.
FlightCo sells MD-80 flight simulation equipment to Centurion in an unauthorized sale.
a. Who is first in the MD-80 flight simulation equipment? Firstbank, §9-325
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
48
Sale(unauthorized)
§9-325(a). [Notwithstanding § 9-322(a)] a security interest created by [Airco] is subordinate to a security interest in the same collateral created by [FlightCo] if:
(1) [Airco] acquired the collateral subject to the security interest created by [FlightCo];
(2) The security interest created by [FlightCo] was perfected when [Airco] acquired the collateral . . .
Priority Rule: Transferor SI versus Transferee SI, §9-325(a)
FlightCo Airco
First Bank Centurion
49
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
50
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account?
51
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
52
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account?
53
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
54
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000?
55
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000? Yes, §9-102(a)(64), §9-315(a)(2) and (b). LIB rule.
56
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000? Yes, §9-102(a)(64), §9-315(a)(2) and (b). LIB rule.
Is Firstbank perfected in the $750,000?
57
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000? Yes, §9-102(a)(64), §9-315(a)(2) and (b). LIB rule.
Is Firstbank perfected in the $750,000? Yes, §9-315(c), (d)(2)
58
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000? Yes, §9-102(a)(64), §9-315(a)(2) and (b). LIB rule.
Is Firstbank perfected in the $750,000? Yes, §9-315(c), (d)(2)
Who’s first? §9-327(1) and (3).
59
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000? Yes, §9-102(a)(64), §9-315(a)(2) and (b). LIB rule.
Is Firstbank perfected in the $750,000? Yes, §9-315(c), (d)(2)
Who’s first? §9-327(1) and (3). Centurion has control; Firstbank doesn’t. §9-104(a)(1). So Centurion has priority.
60
Problem 32.2, page 531 FirstBank lends
to FlightCo, perfects
Jul 21 Nov 4
Centurion lendsto Airco, perfects
Mar 21
FlightCo sells MD-80to Airco
b. Airco paid FlightCo $750K. FlightCo deposited to Centurion.
Does Centurion have a security interest in FlightCo’s Centurion account? Yes, §9-203(b), boilerplate.
Is Centurion perfected in the account? Yes, §9-104(a)(1).
Does FirstBank have a security interest in the $750,000? Yes, §9-102(a)(64), §9-315(a)(2) and (b). LIB rule.
Is Firstbank perfected in the $750,000? Yes, §9-315(c), (d)(2)
Who’s first? §9-327(1) and (3). Centurion has control; Firstbank doesn’t. §9-104(a)(1). So Centurion has priority. Bank accounts are black holes!
61
Problem 32.3, page 532 ONB lends
on computer
A year ago: ONB perfects in the computer and any “substitutions, replacements or accessions.” No provisions regarding future advances.
62
ONB lendson computer
A year ago: ONB perfects in the computer and any “substitutions, replacements or accessions.” No provisions regarding future advances. Financing statement describes collateral as “equipment.”
Problem 32.3, page 532 ONB files against
“equipment”
63
ONB lendson computer
A year ago: ONB perfects in the computer and any “substitutions, replacements or accessions.” No provisions regarding future advances. Financing statement describes collateral as “equipment.”
Now: ONB lends against dry cleaning equipment.
ONB lends on dry cleaning equipment
Problem 32.3, page 532 ONB files against
“equipment”
64
ONB lendson computer
A year ago: ONB perfects in the computer and any “substitutions, replacements or accessions.” No provisions regarding future advances. Financing statement describes collateral as “equipment.”
Now: ONB lends against dry cleaning equipment. Is a new financing statement necessary?
ONB lends on dry cleaning equipment
Problem 32.3, page 532 ONB files against
“equipment”
65
ONB lendson computer
A year ago: ONB perfects in the computer and any “substitutions, replacements or accessions.” No provisions regarding future advances. Financing statement describes collateral as “equipment.”
Now: ONB lends against dry cleaning equipment. Is a new financing statement necessary?
No. The new security interest will have priority as of the old financing statement. “Equipment” describes the dry cleaning equipment. §9-502(d).
ONB lends on dry cleaning equipment
ONB files against “equipment”
Problem 32.3, page 532
66
Problem 32.4, page 532
1K
a. Carol loans $1K secured.
67
Problem 32.4, page 532
1K
45K
a. Carol loans $1K secured. BCA loans $45K secured
68
Problem 32.4, page 532
1K
32K
45K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K.
69
Problem 32.4, page 532
1K
32K
45K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
70
Problem 32.4, page 532
1K
32K
45K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
71
Problem 32.4, page 532
32K
32K
45Ka. Carol loans $1K secured. BCA
loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
72
Problem 32.4, page 532
32K
Before After
32K
45Ka. Carol loans $1K secured. BCA
loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
What title passes at the sale?
73
32K
Problem 32.4, page 532
32K
Before After
32K
45K
32K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
What title passes at the sale?
Buyer takes subject to $32K.
74
32K
Problem 32.4, page 532
32K
Before After
32K
45K
32K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
What title passes at the sale?
Buyer takes subject to $32K.
What can BCA expect from this sale?
75
32K
Problem 32.4, page 532
32K
Before After
32K
45K
32K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
What title passes at the sale?
Buyer takes subject to $32K.
What can BCA expect from this sale?
Nothing. Bob beat BCA!
76
32K
Problem 32.4, page 532
32K
Before After
32K
45K
32K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
What title passes at the sale?
Buyer takes subject to $32K.
What can BCA expect from this sale?
Nothing. Bob beat BCA!
b. Same facts, except Carol had only a financing statement on file?
77
32K
Problem 32.4, page 532
32K
Before After
32K
45K
32K
a. Carol loans $1K secured. BCA loans $45K secured
Assume boat worth about $32K. BCA repossesses.
What effect if Carol advances $31K?
Advance will have priority §9-322(a)(1) (provided SA signed)
What title passes at the sale?
Buyer takes subject to $32K.
What can BCA expect from this sale?
Nothing. Bob beat BCA!
b. Same facts, except Carol had only a financing statement on file? Still works.
78
Problem 32.5, page 532
32K
BCA wants to continue lending in second position, but doesn’t want the first to be able to lend more money after BCA makes its loan.
1K
45K
79
Problem 32.5, page 532
32K
BCA wants to continue lending in second position, but doesn’t want the first to be able to lend more money after BCA makes its loan.
How can BCA accomplish that?
1K
45K
80
Problem 32.5, page 532
32K
BCA wants to continue lending in second position, but doesn’t want the first to be able to lend more money after BCA makes its loan.
How can BCA accomplish that? Subordination agreements with the first lenders. 1K
45K
81
Problem 32.5, page 532
32K
BCA wants to continue lending in second position, but doesn’t want the first to be able to lend more money after BCA makes its loan.
How can BCA accomplish that? Subordination agreements with the first lenders.
Why would the first lenders give them?
1K
45K
82
Problem 32.5, page 532
32K
BCA wants to continue lending in second position, but doesn’t want the first to be able to lend more money after BCA makes its loan.
How can BCA accomplish that? Subordination agreements with the first lenders.
Why would the first lenders give them?
1. Their borrowers want them.
1K
45K
83
Problem 32.5, page 532
32K
BCA wants to continue lending in second position, but doesn’t want the first to be able to lend more money after BCA makes its loan.
How can BCA accomplish that? Subordination agreements with the first lenders.
Why would the first lenders give them?
1. Their borrowers want them.
2. First lender gives up only the right to make a loan it doesn’t want to make.
1K
45K
84
Sara sells speakers; on default, the inventory lender takes them.
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
85
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
86
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
87
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
88
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
§9-324(b). A perfected purchase money security interest in inventory has priority over a conflicting security interest . . . if
89
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
§9-324(b). A perfected purchase money security interest in inventory has priority over a conflicting security interest . . . if
(1) The PMSI is perfected when the debtor receives possession
90
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
§9-324(b). A perfected purchase money security interest in inventory has priority over a conflicting security interest . . . if
(1) The PMSI is perfected when the debtor receives possession
(2) The PMSI party sends an authenticated notification to the holder of the conflicting security interest
91
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
§9-324(b). A perfected purchase money security interest in inventory has priority over a conflicting security interest . . . if
(1) The PMSI is perfected when the debtor receives possession
(2) The PMSI party sends an authenticated notification to the holder of the conflicting security interest
(3) The holder . . . receives the notification within five years before the debtor receives possession
92
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
§9-324(b). A perfected purchase money security interest in inventory has priority over a conflicting security interest . . . if
(1) The PMSI is perfected when the debtor receives possession
(2) The PMSI party sends an authenticated notification to the holder of the conflicting security interest
(3) The holder . . . receives the notification within five years before the debtor receives possession
(4) The notification states that the sender expects to acquire a PMSI in inventory and describes the inventory.
93
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
PMSI
§9-324(b). A perfected purchase money security interest in inventory has priority over a conflicting security interest . . . if
(1) The PMSI is perfected when the debtor receives possession
(2) The PMSI party sends an authenticated notification to the holder of the conflicting security interest
(3) The holder . . . receives the notification within five years before the debtor receives possession
(4) The notification states that the sender expects to acquire a PMSI in inventory and describes the inventory.
What problems do you foresee? What can Sara do about them?
94
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
Sara’s own LenderSecurityInterest
SI
95
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
§9-325. A security interest created by a debtor [Dealers] is subordinate to a security interest in the same collateral created by another person [Sara] if:
Sara’s own LenderSecurityInterest
SI
96
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
§9-325. A security interest created by a debtor [Dealers] is subordinate to a security interest in the same collateral created by another person [Sara] if:
(1) The debtor [Dealers] acquired the collateral subject to the security interest created by the other person [Sara];
Sara’s own LenderSecurityInterest
SI
97
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
§9-325. A security interest created by a debtor [Dealers] is subordinate to a security interest in the same collateral created by another person [Sara] if:
(1) The debtor [Dealers] acquired the collateral subject to the security interest created by the other person [Sara];
(2) The security interest created by the other person [Sara] was perfected when the debtor [Dealers] acquired the collateral;
Sara’s own LenderSecurityInterest
SI
98
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
§9-325. A security interest created by a debtor [Dealers] is subordinate to a security interest in the same collateral created by another person [Sara] if:
(1) The debtor [Dealers] acquired the collateral subject to the security interest created by the other person [Sara];
(2) The security interest created by the other person [Sara] was perfected when the debtor [Dealers] acquired the collateral; and
(3) There is no period thereafter when the SI is unperfected.
Sara’s own LenderSecurityInterest
SI
99
Sara sells speakers; on default, the inventory lender takes them.
How can Sara get priority? PMSI.
What must she do?
Problem 32.6, page 533
DealersSara
Inventory LenderSecurityInterestSpeakers
§9-325. A security interest created by a debtor [Dealers] is subordinate to a security interest in the same collateral created by another person [Sara] if:
(1) The debtor [Dealers] acquired the collateral subject to the security interest created by the other person [Sara];
(2) The security interest created by the other person [Sara] was perfected when the debtor [Dealers] acquired the collateral; and
(3) There is no period thereafter when the SI is unperfected.
Sara’s own LenderSecurityInterest
SI
but 9-320(a)
123
Problem 31.3, page 519
2.0M1.2M
1.5M700K
90 days before
800K800K
§547(c)(5). “The trustee may not avoid . . . a transfer . . . that creates a perfected security interest in inventory or a receivable . . . except to the extent that the aggregate of all such transfers . . . caused a reduction, as of the date of filing . . . of any amount by which the debt secured . . . exceeded the value of all security interests . . . 90 days before the filing of the petition.” $0
Bankruptcy
Day loanborrowed
Day loanrepaid
2.5M1.2M
91 days before
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