Secured Transactions Assignment 32

1
Secured TransactionsAssignment 32

• Secured Creditors against Secured Creditors

2
The Priority Rules

• 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)
3
The Priority Rules

• 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)
4
The Priority Rules

• 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)
5
The Priority Rules

• 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)
6
The Priority Rules

• 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)
7
The Priority Rules

• 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 Seller who perfected within 20 days 9-324(g) PMSI Lender who perfected within 20 days
Priority time The earlier of perfection or filing
8
The Priority Rules

• 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 Seller who perfected within 20 days 9-324(g) PMSI Lender who perfected within 20 days
Priority time Seller wins The earlier of perfection or filing
9
The Priority Rules

• 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
10
The Priority Rules

• 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
11
Priority Rule PMSI versus Lien Creditor,
9-317(e)
Filing
PMSI
Lien creditor
9-317(e). If a person files a financing
statement with respect to a purchase-money
security interest
12
Priority Rule PMSI versus Lien Creditor,
9-317(e)
20 day grace
Delivery
Filing
PMSI
Lien creditor
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
13
Priority Rule PMSI versus Lien Creditor,
9-317(e)
20 day grace
Delivery
Filing
PMSI
Lien creditor
Lien creditor
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
14
Priority Rule PMSI versus Lien Creditor,
9-317(e)
20 day grace
Delivery
Filing
Attachment
PMSI
Lien creditor
Lien creditor
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.
15
Priority Rule PMSI versusSecurity Interest,
9-324(a)
20 day grace
Possession
Filing
PMSI
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
Priority Rule PMSI versusSecurity Interest,
9-324(a)
20 day grace
Possession
Filing
PMSI
SI
Filing
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.
17
Possession
Filing
20 day grace
PMSI
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 . .
. or within 20 days thereafter.
20 day grace
Delivery
Filing
PMSI
Lien creditor
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.
18
Possession
Filing
20 day grace
PMSI
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 . .
. or within 20 days thereafter.
20 day grace
Delivery
Filing
PMSI
Lien creditor
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.
19
Possession
Filing
20 day grace
PMSI
SI
Filing
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 grace
Delivery
Filing
Attachment
PMSI
Lien creditor
Levy
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
Possession
Filing
20 day grace
PMSI
SI
Filing
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 grace
Delivery
Filing
Attachment
PMSI
Lien creditor
Levy
Levy
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.
21
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 1
SA and FS 2009 covers Debtors equipment
Debtor
22
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 1
SA and FS 2009 covers Debtors equipment
Debtor
Reservation of priority against other lenders
against the collateral.
23
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
Reservation of priority against other lenders
against the collateral.
24
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
Sale (unauthorized)
Reservation of priority against other lenders
against the collateral.
25
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
Sale (unauthorized)
Reservation of priority against other lenders
against the collateral.
26
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
Sale (unauthorized)
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 . . .
27
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
Sale (unauthorized)
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!
28
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
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 wont lend.
Unauthorized sale would take Secured 1s priority.
29
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

Secured 2
Secured 1
SA and FS 2012 covers Anothers equipment
SA and FS 2009 covers Debtors equipment
Another
Debtor
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
• The debtor acquired the collateral subject to the
  security interest created by the other person
• The security interest created by the other person
  was perfected when the debtor acquired the
  collateral . . .

30
Problem 32.1, page 531
Bank1 files
Aug 1
31
Problem 32.1, page 531
Bank1 files
Bank2 files SA, lends
Aug 1
Aug 5
32
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Aug 1
Aug 5
Aug 7
33
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
34
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
Bank1 versus Bank2. Who wins?
35
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
Bank1 versus Bank2. Who wins? Bank1, filed
before Bank2 filed or perfected. 9-322(a)(1).
36
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
Bank1 versus Bank2. Who wins? Bank1, filed
before Bank2 filed or perfected.
9-322(a)(1). Bank2 versus C-Dogs. Who wins?
37
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
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).
38
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
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?
39
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
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?
40
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
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?
41
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
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.
Bank1
Bank2
C-Dogs
42
Problem 32.1, page 531
C-Dogs Levies
Bank1 files
Bank2 files SA, lends
Bank1 SA, lends
Aug 1
Aug 5
Aug 7
Aug 10
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
Bank1
Bank2
C-Dogs
43
Problem 32.2, page 531
Centurion lends to Airco, perfects
Mar 21
Centurion lends to Airco, perfects in flight
simulation equipment, including after acquired.
44
Problem 32.2, page 531
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Mar 21
Centurion lends to Airco, perfects in flight
simulation equipment, including after
acquired. Firstbank lends to FlightCo, perfects
in flight simulation equipment, including after
acquired.
45
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
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.
46
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
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?
47
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
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
48
Priority Rule Transferor SI versus Transferee
SI, 9-325(a)

First Bank
Centurion
FlightCo
Airco
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
• Airco acquired the collateral subject to the
  security interest created by FlightCo
• The security interest created by FlightCo was
  perfected when Airco acquired the collateral .
  . .

49
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion.
50
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos Centurion account?
51
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos Centurion account? Yes,
9-203(b), boilerplate.
52
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos Centurion account? Yes,
9-203(b), boilerplate. Is Centurion perfected in
the account?
53
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos Centurion account? Yes,
9-203(b), boilerplate. Is Centurion perfected in
the account? Yes, 9-104(a)(1).
54
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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) Whos first? 9-327(1)
and (3).
59
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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) Whos first? 9-327(1)
and (3). Centurion has control Firstbank
doesnt. 9-104(a)(1). So Centurion has
priority.
60
Problem 32.2, page 531
FlightCo sells MD-80 to Airco
FirstBank lends to FlightCo, perfects
Centurion lends to Airco, perfects
Jul 21
Nov 4
Mar 21
b. Airco paid FlightCo 750K. FlightCo deposited
to Centurion. Does Centurion have a security
interest in FlightCos 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) Whos first? 9-327(1)
and (3). Centurion has control Firstbank
doesnt. 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
Problem 32.3, page 532
ONB lends on computer
ONB files against equipment
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.
63
Problem 32.3, page 532
ONB lends on computer
ONB lends on dry cleaning equipment
ONB files against equipment
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.
64
Problem 32.3, page 532
ONB lends on computer
ONB lends on dry cleaning equipment
ONB files against equipment
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?
65
Problem 32.3, page 532
ONB lends on computer
ONB lends on dry cleaning equipment
ONB files against equipment
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).
66
Problem 32.4, page 532
a. Carol loans 1K secured.
1K
67
Problem 32.4, page 532
a. Carol loans 1K secured. BCA loans 45K
secured
45K
1K
68
Problem 32.4, page 532
a. Carol loans 1K secured. BCA loans 45K
secured Assume boat worth about 32K.
45K
32K
1K
69
Problem 32.4, page 532
a. Carol loans 1K secured. BCA loans 45K
secured Assume boat worth about 32K. BCA
repossesses.
45K
32K
1K
70
Problem 32.4, page 532
a. Carol loans 1K secured. BCA loans 45K
secured Assume boat worth about 32K. BCA
repossesses. What effect if Carol advances 31K?
45K
32K
1K
71
Problem 32.4, page 532
45K
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)
32K
32K
72
Problem 32.4, page 532
45K
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?
32K
32K
After
Before
73
Problem 32.4, page 532
45K
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.
32K
32K
32K
32K
After
Before
74
Problem 32.4, page 532
45K
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?
32K
32K
32K
32K
After
Before
75
Problem 32.4, page 532
45K
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!
32K
32K
32K
32K
After
Before
76
Problem 32.4, page 532
45K
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!
32K
32K
32K
32K
After
Before
b. Same facts, except Carol had only a financing
statement on file?
77
Problem 32.4, page 532
45K
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!
32K
32K
32K
32K
After
Before
b. Same facts, except Carol had only a financing
statement on file? Still works.
78
Problem 32.5, page 532
BCA wants to continue lending in second position,
but doesnt want the first to be able to lend
more money after BCA makes its loan.
45K
32K
1K
79
Problem 32.5, page 532
BCA wants to continue lending in second position,
but doesnt want the first to be able to lend
more money after BCA makes its loan. How can BCA
accomplish that?
45K
32K
1K
80
Problem 32.5, page 532
BCA wants to continue lending in second position,
but doesnt 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.
45K
32K
1K
81
Problem 32.5, page 532
BCA wants to continue lending in second position,
but doesnt 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?
45K
32K
1K
82
Problem 32.5, page 532
BCA wants to continue lending in second position,
but doesnt 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.
45K
32K
1K
83
Problem 32.5, page 532
BCA wants to continue lending in second position,
but doesnt 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 doesnt want to make.
45K
32K
1K
84
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.

Inventory Lender
Security Interest
Speakers
Dealers
Sara
85
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
86
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI
87
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI
88
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI

• 9-324(b). A perfected purchase money security
  interest in inventory has priority over a
  conflicting security interest . . . if

89
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI

• 9-324(b). A perfected purchase money security
  interest in inventory has priority over a
  conflicting security interest . . . if
• The PMSI is perfected when the debtor receives
  possession

90
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI

• 9-324(b). A perfected purchase money security
  interest in inventory has priority over a
  conflicting security interest . . . if
• The PMSI is perfected when the debtor receives
  possession
• The PMSI party sends an authenticated
  notification to the holder of the conflicting
  security interest

91
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI

• 9-324(b). A perfected purchase money security
  interest in inventory has priority over a
  conflicting security interest . . . if
• The PMSI is perfected when the debtor receives
  possession
• The PMSI party sends an authenticated
  notification to the holder of the conflicting
  security interest
• The holder . . . receives the notification within
  five years before the debtor receives possession

92
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI

• 9-324(b). A perfected purchase money security
  interest in inventory has priority over a
  conflicting security interest . . . if
• The PMSI is perfected when the debtor receives
  possession
• The PMSI party sends an authenticated
  notification to the holder of the conflicting
  security interest
• The holder . . . receives the notification within
  five years before the debtor receives possession
• The notification states that the sender expects
  to acquire a PMSI in inventory and describes the
  inventory.

93
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

What problems do you foresee? What can Sara do
about them?
Inventory Lender
Security Interest
Speakers
Dealers
Sara
PMSI

• 9-324(b). A perfected purchase money security
  interest in inventory has priority over a
  conflicting security interest . . . if
• The PMSI is perfected when the debtor receives
  possession
• The PMSI party sends an authenticated
  notification to the holder of the conflicting
  security interest
• The holder . . . receives the notification within
  five years before the debtor receives possession
• The notification states that the sender expects
  to acquire a PMSI in inventory and describes the
  inventory.

94
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Saras own Lender
Security Interest
Security Interest
Speakers
Dealers
Sara
SI
95
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Saras own Lender
Security Interest
Security Interest
Speakers
Dealers
Sara
SI

• 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

96
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Saras own Lender
Security Interest
Security Interest
Speakers
Dealers
Sara
SI

• 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
• The debtor Dealers acquired the collateral
  subject to the security interest created by the
  other person Sara

97
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Saras own Lender
Security Interest
Security Interest
Speakers
Dealers
Sara
SI

• 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
• The debtor Dealers acquired the collateral
  subject to the security interest created by the
  other person Sara
• The security interest created by the other person
  Sara was perfected when the debtor Dealers
  acquired the collateral

98
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Saras own Lender
Security Interest
Security Interest
Speakers
Dealers
Sara
SI

• 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
• The debtor Dealers acquired the collateral
  subject to the security interest created by the
  other person Sara
• The security interest created by the other person
  Sara was perfected when the debtor Dealers
  acquired the collateral and
• There is no period thereafter when the SI is
  unperfected.

99
Problem 32.6, page 533

• Sara sells speakers on default, the inventory
  lender takes them.
• How can Sara get priority? PMSI.
• What must she do?

Inventory Lender
Saras own Lender
Security Interest
Security Interest
but 9-320(a)
Speakers
Dealers
Sara
SI

• 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
• The debtor Dealers acquired the collateral
  subject to the security interest created by the
  other person Sara
• The security interest created by the other person
  Sara was perfected when the debtor Dealers
  acquired the collateral and
• There is no period thereafter when the SI is
  unperfected.

100
Problem 32.7, page 526
Grumman owes Centurion 1 million
unsecured Grumman owes First 5 million, secured
by all assets
5M
5M
101
Problem 32.7, page 526
Grumman owes Centurion 1 million
unsecured Grumman owes First 5 million, secured
by all assets Firsts financing statement does
not show up on a search
5M
102
Problem 32.7, page 526
Grumman owes Centurion 1 million
unsecured Grumman owes First 5 million, secured
by all assets Firsts financing statement does
not show up on a search Plan Centurion lends
another 400K, gets first position
5M
1.4M
103
Problem 32.7, page 526
Grumman owes Centurion 1 million
unsecured Grumman owes First 5 million, secured
by all assets Firsts financing statement does
not show up on a search Plan Centurion lends
another 400K, gets first position. (Then First
will refile.)
5M
5M
1.4M
104
Problem 32.7, page 526

• Grumman owes Centurion 1 million unsecured
• Grumman owes First 5 million, secured by all
  assets
• Firsts financing statement does not show up on a
  search
• Plan Centurion lends another 400K, gets first
  position. (Then First will refile.)
• Is there any way First could have an effective
  financing statement on file?

5M
1.4M
5M
105
Problem 32.7, page 526

• Grumman owes Centurion 1 million unsecured
• Grumman owes First 5 million, secured by all
  assets
• Firsts financing statement does not show up on a
  search
• Plan Centurion lends another 400K, gets first
  position. (Then First will refile.)
• Is there any way First could have an effective
  financing statement on file?

5M
5M
1.4M
In a state where collateral or debtor were
recently located Against a former owner of the
collateral. 9-507(a) Incorrectly indexed by
filing office error. 9-517
106
Problem 32.7, page 526
Hypothetical The filing office wrongfully
rejects Firstbanks filing. Centurian knows that
Firstbank claims a SI, but gets a clean search
and purchases.
5M
5M
1.4M
107
Problem 32.7, page 526
Hypothetical The filing office wrongfully
rejects Firstbanks filing. Centurian knows that
Firstbank claims a SI, but gets a clean search
and purchases. 9-516(d). A record . . . the
filing office wrongfully refuses to accept is
effective, except as against a purchaser . . .
which gives value in reasonable reliance upon the
absence of the record from the files.
5M
5M
1.4M
108
Problem 32.7, page 526
Hypothetical The filing office wrongfully
rejects Firstbanks filing. Centurian knows that
Firstbank claims a SI, but gets a clean search
and purchases. 9-516(d). A record . . . the
filing office wrongfully refuses to accept is
effective, except as against a purchaser . . .
which gives value in reasonable reliance upon the
absence of the record from the files.
5M
5M
1.4M
Is Centurions reliance unreasonable?
109
Problem 32.7, page 526
Hypothetical The filing office wrongfully
rejects Firstbanks filing. Centurian knows that
Firstbank claims a SI, but gets a clean search
and purchases. 9-516(d). A record . . . the
filing office wrongfully refuses to accept is
effective, except as against a purchaser . . .
which gives value in reasonable reliance upon the
absence of the record from the files.
5M
5M
1.4M
Is Centurions reliance unreasonable? If not,
whose is?
110
Problem 32.7, page 526
Hypothetical The filing office wrongfully
rejects Firstbanks filing. Centurian knows that
Firstbank claims a SI, but gets a clean search
and purchases. 9-516(d). A record . . . the
filing office wrongfully refuses to accept is
effective, except as against a purchaser . . .
which gives value in reasonable reliance upon the
absence of the record from the files.
5M
5M
1.4M
Is Centurians reliance unreasonable? If not,
whose is? 9-338 Comment 2. A purchaser who has
not made itself aware of the information in the
filing office with respect to the debtor cannot
act in reasonable reliance upon incorrect
information.
111
Problem 32.7, page 526
Hypothetical The filing office wrongfully
rejects Firstbanks filing. Centurian knows that
Firstbank claims a SI, but gets a clean search
and purchases. 9-516(d). A record . . . the
filing office wrongfully refuses to accept is
effective, except as against a purchaser . . .
which gives value in reasonable reliance upon the
absence of the record from the files.
5M
5M
1.4M
Is Centurians reliance unreasonable? If not,
whose is? 9-338 Comment 2. A purchaser who has
not made itself aware of the information in the
filing office with respect to the debtor cannot
act in reasonable reliance upon incorrect
information. One who doesnt search? Or one who
knows of the rejection?
112
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
5M
5M
1.4M
113
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us?
5M
5M
1.4M
114
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant.
5M
5M
1.4M
115
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant.
5M
5M
1.4M
116
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files.
5M
5M
1.4M
117
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files. c. What should we do?
5M
5M
1.4M
118
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files. c. What should we do? Dont just lend.
We could be wrong.
5M
1.4M
5M
119
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files. c. What should we do? Dont just lend.
We could be wrong. Make a contingent deal.
5M
5M
1.4M
120
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files. c. What should we do? Dont just lend.
We could be wrong. Make a contingent deal. File
a financing statement.
5M
5M
1.4M
121
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files. c. What should we do? Dont just lend.
We could be wrong. Make a contingent deal. File
a financing statement. Then give First a call.
5M
5M
1.4M
122
Problem 32.7, page 526
b. Is it safe to search for a misindexed filing?
If we find an erroneous filing before we lend, is
it binding on us? No. 9-322(a)(1). Knowledge
is irrelevant. Yes. 9-516(d). We cant
reasonably rely on absence of the record from the
files. c. What should we do? Dont just lend.
We could be wrong. Make a contingent deal. File
a financing statement. Then give First a
call. d. Is there an ethical issue here?
5M
5M
1.4M
123
Problem 31.3, page 519
2.5M
2.0M
800K
1.2M
1.2M
1.5M
800K
700K
Day loan borrowed
Day loan repaid

90 days before
Bankruptcy
91 days before
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