Secured Transactions Assignment 34

1
Secured TransactionsAssignment 34

• Cross-Collateralization and Marshaling

2
The Big Picture

• Part Two The Creditor Third Party Relationship
• Assignment 28 Lien Creditors vs Secureds The
  Basics
• Assignment 29 Lien Creditors vs Secured Future
  Advances
• Assignment 31 Trustees vs Secureds Preferences
• Assignment 32 Secureds vs. Secureds Basics
• Assignment 33 Secureds vs. Secureds Land and
  Fixtures
• Assignment 34 Secureds vs. Secureds Marshaling
• Assignment 35 Sellers vs. Secureds
• Assignment 36 Buyers vs. Secureds
• Assignment 40 Why Secured Credit?

3
The Big Picture

• Assignment 34 Multiple Items of Collateral
• 1. The secured creditors option to foreclose
• 2. The junior lienors right to force marshalling
• 3. Purchase money status

4
Rules Secured CreditorsRight to Foreclose
1. The secured creditor can choose when to
foreclose

5
Rules Secured CreditorsRight to Foreclose
1. The secured creditor can choose when to
foreclose 2. The secured creditor can foreclose
against part of the collateral and later
foreclose against other parts.

6
Rules Secured CreditorsRight to Foreclose

• 1. The secured creditor can choose when to
  foreclose
• The secured creditor can foreclose against part
  of the collateral and later foreclose against
  other parts.
• Limitations on 2

7
Rules Secured CreditorsRight to Foreclose

• 1. The secured creditor can choose when to
  foreclose
• The secured creditor can foreclose against part
  of the collateral and later foreclose against
  other parts.
• Limitations on 2
• a. Nuisance

8
Rules Secured CreditorsRight to Foreclose

• 1. The secured creditor can choose when to
  foreclose
• The secured creditor can foreclose against part
  of the collateral and later foreclose against
  other parts.
• Limitations on 2
• a. Nuisance
• b. California single action rule (real estate)

9
Rules Secured CreditorsRight to Foreclose

• 1. The secured creditor can choose when to
  foreclose
• The secured creditor can foreclose against part
  of the collateral and later foreclose against
  other parts.
• Limitations on 2
• a. Nuisance
• b. California single action rule (real estate)
• c. Marshaling of assets

10
Rules Marshaling
1. A creditor having two funds to satisfy his
debt may not, by his application of them to his
demand, defeat another lien creditor, who may
resort to only one of the funds.

11
Rules Marshaling

• 1. A creditor having two funds to satisfy his
  debt may not, by his application of them to his
  demand, defeat another lien creditor, who may
  resort to only one of the funds.
• Three elements must be present

12
Rules Marshaling

• 1. A creditor having two funds to satisfy his
  debt may not, by his application of them to his
  demand, defeat another lien creditor, who may
  resort to only one of the funds.
• Three elements must be present
• (1) the existence of two creditors of the Debtor

13
Rules Marshaling

• 1. A creditor having two funds to satisfy his
  debt may not, by his application of them to his
  demand, defeat another lien creditor, who may
  resort to only one of the funds.
• Three elements must be present
• (1) the existence of two creditors of the Debtor
• (2) the existence of two funds owned by the
  Debtor,

14
Rules Marshaling

• 1. A creditor having two funds to satisfy his
  debt may not, by his application of them to his
  demand, defeat another lien creditor, who may
  resort to only one of the funds.
• Three elements must be present
• (1) the existence of two creditors of the Debtor
• (2) the existence of two funds owned by the
  Debtor, and
• (3) the ability of one creditor to satisfy its
  claim from either or both of the funds

15
Rules Marshaling

• 1. A creditor having two funds to satisfy his
  debt may not, by his application of them to his
  demand, defeat another lien creditor, who may
  resort to only one of the funds.
• Three elements must be present
• (1) the existence of two creditors of the Debtor
• (2) the existence of two funds owned by the
  Debtor, and
• (3) the ability of one creditor to satisfy its
  claim from either or both of the funds
• 3. A minority of jurisdictions do not require
  debtor own both funds one can be owned by a
  third party.

16
Rules Marshaling

• 1. A creditor having two funds to satisfy his
  debt may not, by his application of them to his
  demand, defeat another lien creditor, who may
  resort to only one of the funds.
• Three elements must be present
• (1) the existence of two creditors of the Debtor
• (2) the existence of two funds owned by the
  Debtor, and
• (3) the ability of one creditor to satisfy its
  claim from either or both of the funds
• 3. A minority of jurisdictions do not require
  debtor own both funds one can be owned by a
  third party.
• 4. Marshaling can be applied only if the senior
  creditor is not prejudiced.

17
Rules Marshaling
5. When two funds are present, but marshaling is
not available, the court can allow the senior its
choice of collateral, but equitably assign the
seniors lien on the other fund to the junior
creditor.

18
Rules Marshaling
5. When two funds are present, but marshaling is
not available, the court can allow the senior its
choice of collateral, but equitably assign the
seniors lien on the other fund to the junior
creditor. 6. A creditor with a junior lien cannot
force the senior lien to marshal against
homestead property.

19
Problem 34.1, page 564
Paula holds a second mortgage against property
worth about 400K. The first mortgage is 440K.
Paula

440K
400K
20
Problem 34.1, page 564

• Paula holds a second mortgage against property
  worth about 400K. The first mortgage is 440K.
• If no additional facts come to light, what will
  Paula recover?

Paula

440K
400K
21
Problem 34.1, page 564

• Paula holds a second mortgage against property
  worth about 400K. The first mortgage is 440K.
• If no additional facts come to light, what will
  Paula recover?
• Approximately zero.

Paula

440K
400K
22
Problem 34.1, page 564

• Paula holds a second mortgage against property
  worth about 400K. The first mortgage is 440K.
• If no additional facts come to light, what will
  Paula recover?
• Approximately zero.
• b. What new facts might enable Paula to recover?

Paula

440K
400K
23
Problem 34.1, page 564

• Paula holds a second mortgage against property
  worth about 400K. The first mortgage is 440K.
• If no additional facts come to light, what will
  Paula recover?
• Approximately zero.
• b. What new facts might enable Paula to recover?
• The first mortgage holder can look to other
  collateral.

Paula

440K
400K
24
Problem 34.2, page 564
4M CE

4.5M UCB
Apartments
25
Problem 34.2, page 564
4M CE

Hurst 250K
4.5M UCB
4M CE
Apartments
Yacht
26
Problem 34.2, page 564
4M CE

6.6M
2.1M
Hurst 250K
4.5M UCB
4M CE
2.5M
Apartments
Yacht

• The trustee sold the apartment building for 6.6M
  and the yacht for 2.5M.

27
Problem 34.2, page 564
4M CE

6.6M
2.1M
Hurst 250K
4.5M UCB
4M CE
2.5M
Apartments
Yacht

• The trustee sold the apartment building for 6.6M
  and the yacht for 2.5M. Who is entitled to the
  proceeds?

28
Problem 34.2, page 564

6.6M
2.1M
Marshaling
4.5M UCB
2.5M
Hurst 250K
1.9M
Apartments
Yacht

• The trustee sold the apartment building for 6.6M
  and the yacht for 2.5M. Who is entitled to the
  proceeds?
• UCB 4.5M, CE 4M, Hurst 250K, Trustee 350K

29
Problem 34.2, page 564
4M CE

6.6M
Hurst 250K
4.5M UCB
4M CE
2M
Apartments
Yacht

• The trustee sold the apartment building for 6.6M
  and the yacht for 2.5M. Who is entitled to the
  proceeds?
• UCB 4.5M, CE 4M, Hurst 250K, Trustee 350K
• Yacht sold for only 2M?

30
Problem 34.2, page 564

6.6M
2.1M
Marshaling
4.5M UCB
2M
Hurst 250K
1.9M
Apartments
Yacht

• The trustee sold the apartment building for 6.6M
  and the yacht for 2.5M. Who is entitled to the
  proceeds?
• UCB 4.5M, CE 4M, Hurst 250K, Trustee 350K
• Yacht sold for only 2M?
• Hurst gets only 100K.

31
Problem 34.3, page 564
Miller
10K
440K PCA
600K
350K NCB
Farm
32
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
550K
440K PCA
350K NCB
Farm
Machinery
33
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
34
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller.
35
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money?
36
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB, PCA.
37
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery?
38
Problem 34.3, page 564
Marshaling
600K
630K
550K
SBA
Miller
10K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead.
39
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead. Could SBA collect from
homestead if they wished to?
40
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead. Could SBA collect from
homestead if they wished to? Yes
41
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead. Could SBA collect from
homestead if they wished to? Yes What effect on
us?
42
Problem 34.3, page 564
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead. Could SBA collect from
homestead if they wished to? Yes What effect on
us? We recover.
43
Problem 34.3, page 564
Marshaling
600K
630K
550K
540K SBA
10K
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead. Could SBA collect from
homestead if they wished to? Yes What effect on
us? We recover.
44
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
We represent Miller. Assume NCB forecloses and
the farm is sold. Who gets the money? NCB,
PCA. Can Miller force PCA to look to the
Machinery? Probably no, because that would force
SBA to look to homestead. Could SBA collect from
homestead if they wished to? Yes What effect on
us? We recover. How do we persuade them?
45
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
If PCA wants to collect from the Machinery, can
SBA stop them?
46
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
If PCA wants to collect from the Machinery, can
SBA stop them? No. Cant marshal against a lien
creditor (Miller).
47
Problem 34.3, page 564
540K SBA
Miller
10K
440K PCA
600K
630K
550K
540K SBA
440K PCA
350K NCB
Farm
Homestead
Machinery
If PCA wants to collect from the Machinery, can
SBA stop them? No. Cant marshal against a lien
creditor (Miller). What result if Miller buys
PCAs loan and forecloses against the machinery?
48
Problem 34.3, page 564
600K
630K
550K
540K SBA
10K
440K PCA
350K NCB
Farm
Homestead
Machinery
If PCA wants to collect from the Machinery, can
SBA stop them? No. Cant marshal against a lien
creditor (Miller). What result if Miller buys
PCAs loan and forecloses against the machinery?
Miller gets paid in full on both debts.
49
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item)

Auto
Buyer
Seller
Secured obligation
50
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item) or
• for value given to enable the debtor to acquired
  rights in the collateral (item) if the value is
  in fact so used.

Bank
Security interest PMSI
Cash
Auto
Buyer
Seller
Cash
51
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item) or
• for value given to enable the debtor to acquired
  rights in the collateral (item) if the value is
  in fact so used.

Bank
Cash
Security interest PMSI
Auto
Buyer
Seller
52
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item) or
• for value given to enable the debtor to acquired
  rights in the collateral (item) if the value is
  in fact so used.
• All collateral purchased at the same time is
  treated as an item.

53
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item) or
• for value given to enable the debtor to acquired
  rights in the collateral (item) if the value is
  in fact so used.
• All collateral purchased at the same time is
  treated as an item.
• Example Debtor buys 100 widgets for 100k and
  gives a security interest for the purchase price.
  

54
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item) or
• for value given to enable the debtor to acquired
  rights in the collateral (item) if the value is
  in fact so used.
• All collateral purchased at the same time is
  treated as an item.
• Example Debtor buys 100 widgets for 100k and
  gives a security interest for the purchase price.
  The transaction creates one purchase money
  security interest securing 100k obligation not
  100 PMSIs each securing 1k.

55
Rules Purchase Money Status

• A secured obligation is purchase money to the
  extent it is incurred
• as all or part of the purchase price of the
  collateral (item) or
• for value given to enable the debtor to acquired
  rights in the collateral (item) if the value is
  in fact so used.
• All collateral purchased at the same time is
  treated as an item.
• Example Debtor buys 100 widgets for 100k and
  gives a security interest for the purchase price.
  The transaction creates one purchase money
  security interest securing 100k obligation not
  100 PMSIs each securing 1k.
• 9-103(b)(2). All inventory purchased with money
  from the secured creditor at any time is treated
  as an item which is purchase money collateral
  for the entire loan.

56
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1)

57
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1)

Debt
Debt
Debt
Debt
Debt
Security Interest
Collateral
Collateral
Collateral
Collateral
58
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1)

Debt
Debt
Debt
Debt
Debt
Security Interest
PMSI Status
Collateral
Collateral
Collateral
Collateral
59
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1) Example Secured takes a 10,000
PMSI in collateral. Later, Secured makes an
additional advance against the same collateral in
the amount of 2,000.

60
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1) Example Secured takes a 10,000
PMSI in collateral. Later, Secured makes an
additional advance against the same collateral in
the amount of 2,000. Secureds interest is
purchase money to the extent of 10,000 and
non-purchase money to the extent of 2,000.

61
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1) Example Secured takes a 10,000
PMSI in collateral. Later, Secured makes an
additional advance against the same collateral in
the amount of 2,000. Secureds interest is
purchase money to the extent of 10,000 and
non-purchase money to the extent of
2,000. Refinancing does not destroy purchase
money status 9-103(f)(3)

62
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1) Example Secured takes a 10,000
PMSI in collateral. Later, Secured makes an
additional advance against the same collateral in
the amount of 2,000. Secureds interest is
purchase money to the extent of 10,000 and
non-purchase money to the extent of
2,000. Refinancing does not destroy purchase
money status 9-103(f)(3) Example Debtor signs a
new note in the amount of 12,000, which note
bears a different rate of interest.

63
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1) Example Secured takes a 10,000
PMSI in collateral. Later, Secured makes an
additional advance against the same collateral in
the amount of 2,000. Secureds interest is
purchase money to the extent of 10,000 and
non-purchase money to the extent of
2,000. Refinancing does not destroy purchase
money status 9-103(f)(3) Example Debtor signs a
new note in the amount of 12,000, which note
bears a different rate of interest. The secured
party has the burden of showing the extent to
which the security interest is purchase money.
9-103(g).

64
Rules Purchase Money Status
Dual status rule A security interest may be
part purchase money and part non-purchase money.
9-103(f)(1) Example Secured takes a 10,000
PMSI in collateral. Later, Secured makes an
additional advance against the same collateral in
the amount of 2,000. Secureds interest is
purchase money to the extent of 10,000 and
non-purchase money to the extent of
2,000. Refinancing does not destroy purchase
money status 9-103(f)(3) Example Debtor signs a
new note in the amount of 12,000, which note
bears a different rate of interest. The secured
party has the burden of showing the extent to
which the security interest is purchase money.
9-103(g). It does that by tracing payments and
accruals according to the allocation rules in
9-103(e).

65
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles.

66
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles. A
lender can get purchase money status in other
kinds of collateral as proceeds.

67
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles. A
lender can get purchase money status in other
kinds of collateral as proceeds. 9-324(a). A
perfected purchase money security interest . . .
has priority over a conflicting security interest
in the same goods and . . . a perfected security
interest in the PMSIs identifiable proceeds
also has priority . . . .

68
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles. A
lender can get purchase money status in other
kinds of collateral as proceeds. 9-324(a). A
perfected purchase money security interest . . .
has priority over a conflicting security interest
in the same goods and . . . a perfected security
interest in the PMSIs identifiable proceeds
also has priority . . . . Example Lender has a
PMSI in debtors computer.

69
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles. A
lender can get purchase money status in other
kinds of collateral as proceeds. 9-324(a). A
perfected purchase money security interest . . .
has priority over a conflicting security interest
in the same goods and . . . a perfected security
interest in the PMSIs identifiable proceeds
also has priority . . . . Example Lender has a
PMSI in debtors computer. Debtor sells the
computer to Buyer on credit (an account).

70
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles. A
lender can get purchase money status in other
kinds of collateral as proceeds. 9-324(a). A
perfected purchase money security interest . . .
has priority over a conflicting security interest
in the same goods and . . . a perfected security
interest in the PMSIs identifiable proceeds
also has priority . . . . Example Lender has a
PMSI in debtors computer. Debtor sells the
computer to Buyer on credit (an account). Lender
has a PMSI in the account.

71
Rules Purchase Money Status
9-103(e) recognizes PMSIs in goods and related
software. A lender cannot take a PMSI in
accounts, instruments, or general intangibles. A
lender can get purchase money status in other
kinds of collateral as proceeds. 9-324(a). A
perfected purchase money security interest . . .
has priority over a conflicting security interest
in the same goods and . . . a perfected security
interest in the PMSIs identifiable proceeds
also has priority . . . . Example Lender has a
PMSI in debtors computer. Debtor sells the
computer to Buyer on credit (an account). Lender
has a PMSI in the account. Questions?

72
Problem 34.6, page 571
Sansei sells a robot to Williams
500K debt
Robot
73
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
500K debt
SI
Robot
74
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
SI
Robot
75
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
SI
Robot

• a. Is this security interest purchase money?

76
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b).

77
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent?

78
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.

79
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
400K debt
Sub

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement.

80
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
400K debt
Sub

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered?

81
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
400K debt
Sub

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.

82
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
400K debt
Sub

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?

83
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
400K debt
Sub

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes.

84
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
400K debt
Sub

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent?

85
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
non-PM
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K

86
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
non-PM
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account.

87
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
non-PM
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI?

88
Problem 34.6, page 571
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
non-PM
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

89
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

90
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

91
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

92
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 400K
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

93
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
PMSI
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 900K 9-103(b)(2)
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

94
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
PMSI
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 900K 9-103(b)(2)
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 490K robot,
  400K sub.

95
Problem 34.6.e, page 556
Sansei sells a robot to Williams, takes SI
securing 500K balance and all other debts.
Collateral is all Sansei equipment.
500K debt
PMSI
Robot
Inventory
PMSI
400K debt
Sub
PMSI

• a. Is this security interest purchase money?
  Yes. 9-103(a) and (b). To what extent? 500K.
• Sansei sells sub to Williams, note for 400K, no
  security agreement. For what amount is sub
  encumbered? 900K.
• Is Sanseis interest in the sub purchase money?
  Yes. To what extent? 900K 9-103(b)(2)
• Williams pays 10K. Sansei credits money to
  900K account. How much is PMSI? 890K robot,
  890K sub.

96
Problem 34.7, page 556
Coyote sells loaders, SI
5-31
97
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote sells loaders, SI
5-31
6-1
98
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote sells loaders, SI
6-2
5-31
6-1
99
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1
100
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k?

101
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)

102
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k?

103
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k? Yes.

104
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k? Yes.
• Whos first? 9-324(g).

105
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k? Yes.
• Whos first? 9-324(g). Coyote.

106
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k? Yes.
• Whos first? 9-324(g). Coyote. Policy?
  Comment 13.

107
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote files
Coyote delivers
Coyote sells loaders, SI
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k? Yes.
• Whos first? 9-324(g). Coyote. Policy?
  Comment 13.
• What could FNB have done to protect itself?

108
Problem 34.7, page 556
FNB SI, files, disburses to Coyote
Coyote sells loaders, SI
Coyote files
Coyote delivers
6-2
6-2
5-31
6-1

• Does Coyote have a PMSI for 50k? Yes.
  9-103(a)(2)
• Does FNB have a PMSI for 40k? Yes.
• Whos first? 9-324(g). Coyote. Policy?
  Comment 13.
• What could FNB have done to protect itself?
• Subordination agreement or estoppel letter.

109
Problem 34.8, page 556
Firstbank takes SI and files against inventory,
finances only Bayliners.
Firstbank
Bayliners

Shoreliners
110
Problem 34.8, page 556
Firstbank takes SI and files against inventory,
finances only Bayliners. How would you
characterize Firstbanks security interest?
Firstbank
Bayliners

Shoreliners
111
Problem 34.8, page 556
Firstbank takes SI and files against inventory,
finances only Bayliners. How would you
characterize Firstbanks security interest?
PMSI
Firstbank
Bayliners

Non-PMSI
Shoreliners
PMSI in Bayliners non-PMSI in Shoreliners.
112
Problem 34.8, page 556
Firstbank takes SI and files against inventory,
finances only Bayliners. How would you
characterize Firstbanks security interest?
PMSI
Firstbank
Bayliners

Non-PMSI
Deutsche
Shoreliners
PMSI
PMSI in Bayliners non-PMSI in Shoreliners. Deutsc
he takes SI and files against inventory,
finances only Shoreliners.
113
Problem 34.8, page 556
Firstbank takes SI and files against inventory,
finances only Bayliners. How would you
characterize Firstbanks security interest?
PMSI
Firstbank
Bayliners

Non-PMSI
Deutsche
Shoreliners
PMSI
PMSI in Bayliners non-PMSI in Shoreliners. Deutsc
he takes SI and files against inventory,
finances only Shoreliners. If Deutsche complies
with 9-324(b) and provides all Shoreliners
financing, will Deutsche have priority over
Firstbank in Shoreliners?
114
Problem 34.8, page 556
Firstbank takes SI and files against inventory,
finances only Bayliners. How would you
characterize Firstbanks security interest?
PMSI
Firstbank
Bayliners

Non-PMSI
Deutsche
Shoreliners
PMSI
PMSI in Bayliners non-PMSI in Shoreliners. Deutsc
he takes SI and files against inventory,
finances only Shoreliners. If Deutsche complies
with 9-324(b) and provides all Shoreliners
financing, will Deutsche have priority over
Firstbank in Shoreliners? Yes. Deutsche will be
PMSI in Shoreliners Firstbank will not.
115
Problem 34.8, page 556

• Debtor uses 100 of Firstbank money to buy a
  Shoreliner boat.

PMSI
Firstbank
Bayliners

Non-PMSI
Deutsche
Shoreliners
PMSI
116
Problem 34.8, page 556

• Debtor uses 100 of Firstbank money to buy a
  Shoreliner boat. Does Firstbank have a PMSI in
  the boat?

PMSI
Firstbank
Bayliners

Non-PMSI
Deutsche
Shoreliners
PMSI
117
Problem 34.8, page 556

• Debtor uses 100 of Firstbank money to buy a
  Shoreliner boat. Does Firstbank have a PMSI in
  the boat?

PMSI
Firstbank
Bayliners

Non-PMSI
Deutsche
Shoreliners
PMSI
9-103(b)(2) A security interest in goods is a
purchase-money security interest . . . if the
security interest is in inventory that is or was
purchase-money collateral, also to the extent
that the security interest secures a purchase
money obligation incurred with respect to other
inventory in which the secured party holds or
held a PMSI
118
Problem 34.8, page 556

• Debtor uses 100 of Firstbank money to buy a
  Shoreliner boat. Does Firstbank have a PMSI in
  the boat? Yes.

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
9-103(b)(2) A security interest in goods is a
purchase-money security interest . . . if the
security interest is in inventory that is or was
purchase-money collateral, also to the extent
that the security interest secures a purchase
money obligation incurred with respect to other
inventory in which the secured party holds or
held a PMSI
119
Problem 34.8, page 556

• Debtor uses 100 of Firstbank money to buy a
  Shoreliner boat. Does Firstbank have a PMSI in
  the boat? Yes.
• For how much money?

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
9-103(b)(2) A security interest in goods is a
purchase-money security interest . . . if the
security interest is in inventory that is or was
purchase-money collateral, also to the extent
that the security interest secures a purchase
money obligation incurred with respect to other
inventory in which the secured party holds or
held a PMSI
120
Problem 34.8, page 556

• Debtor uses 100 of Firstbank money to buy a
  Shoreliner boat. Does Firstbank have a PMSI in
  the boat? Yes.
• For how much money?
• All purchase money in any collateral.

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
9-103(b)(2) A security interest in goods is a
purchase-money security interest . . . if the
security interest is in inventory that is or was
purchase-money collateral, also to the extent
that the security interest secures a purchase
money obligation incurred with respect to other
inventory in which the secured party holds or
held a PMSI
121
Problem 34.8, page 556

• Who has priority in the Shoreliner? 9-324(g) and
  Comment 13.

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
122
Problem 34.8, page 556

• Who has priority in the Shoreliner? 9-324(g) and
  Comment 13.
• Firstbank filed first.

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
123
Problem 34.8, page 556

• Who has priority in the Shoreliner? 9-324(g) and
  Comment 13.
• Firstbank filed first.
• d. Who would have priority if Deutsche had filed
  first?

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
124
Problem 34.8, page 556

• Who has priority in the Shoreliner? 9-324(g) and
  Comment 13.
• Firstbank filed first.
• d. Who would have priority if Deutsche had filed
  first? Deutsche.

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
125
Problem 34.8, page 556

• Who has priority in the Shoreliner? 9-324(g) and
  Comment 13.
• Firstbank filed first.
• d. Who would have priority if Deutsche had filed
  first? Deutsche.

PMSI
Firstbank
Bayliners
PMSI

Deutsche
Shoreliners
PMSI
Safe to lend on inventory without a subordination
agreement?
9-103(b)(2) A security interest in goods is a
purchase-money security interest . . . if the
security interest is in inventory that is or was
purchase-money collateral, also to the extent
that the security interest secures a purchase
money obligation incurred with respect to other
inventory in which the secured party holds or
held a PMSI