1. 1. Classify the persons claiming the collateral. 2. Apply appropriate priority rules. 2.

PRIORITIES

1

Basic Approach

1. Classify the persons claiming the collateral.

2. Apply appropriate priority rules.

2

Secured Creditor vs. Lien Creditor

Lien creditor Unsecured (general) creditor who

sued and obtained a lien. Trustee in bankruptcy.

3

Secured Creditor vs. Lien Creditor

Prevailing creditor is first to: Perfect, or Obtain lien.

Problem 314 – p. 869

4

Secured creditor vs. Unsecured creditor

[House (any kind) vs. homeless]

Secured creditor wins.

5

Unperfected secured creditor vs. Unperfected secured creditor

[straw house vs. straw house]

First to attach wins.

6

Perfected secured creditor vs. Unperfected secured creditor

[wood house vs. straw house]

Perfected wins Temporal order

irrelevant Knowledge that

unperfected creditor first irrelevant


7

Perfected secured creditor vs. Perfected secured creditor

[wood house vs. wood house]

First creditor who either: filed, or perfected.

9

Perfected secured creditor vs. Perfected secured creditor

Problem 316 – p.870




Problem 320 – p. 872 Dragnet clause

10

Special Rule: One creditor has PMSI in non-inventory goods

PMSI creditor can win (even though not first to file or first to perfect) if perfected within 20 days of when the debtor receives possession of the collateral.

Problem 322 – p. 879Problem 323 – p. 882Problem 324 – p. 882 11

Special Rule: One creditor has PMSI in inventory

PMSI creditor can win (even though not first to file or first to perfect) if:

1. Perfected when the debtor receives possession of the inventory, and

12


PMSI creditor can win (even though not first to file or first to perfect) if: 2. Gives notice to holders of

conflicting security interests before debtor receives possession of the inventory.▪ Explain that creditor is getting PMSI.▪ Describe the collateral.▪ Notice is effective for five years.

13



Problem 326 – p.894


14

Review – Two perfected creditors General Rule = First creditor to

either: File, or Perfect.

Exceptions: PMSI (equipment, consumer goods)

▪ Perfected within 20 days of debtor’s possession.

PMSI (inventory, livestock)▪ Perfected and notice to prior creditors by

time of debtor’s possession. 15

Special Rule: Investment property

If one creditor perfected by control, that creditor wins.


16

Special Rule: Deposit Accounts

Secured party with control prevails (only perfection method for deposit accounts).


17

Secured creditor vs. Donee

Secured creditor wins.

18

Secured creditor vs. Purchaser of collateral

Presumption = Secured creditor wins.

BUT, many exceptions so purchaser often wins.

19


Purchaser wins if purchaser is a buyer in the ordinary course of business.

20


Purchaser wins if purchaser is a buyer in the ordinary course of business. 1. Good faith

▪ Honest in fact, plus▪ Observance of reasonable commercial

standards.

21


Purchaser wins if purchaser is a buyer in the ordinary course of business. 1. Good faith 2. Without knowledge of security

interest violation▪ OK to know about the security interest.

22



interest violation 3. Purchased goods that are not

farm products▪ Farm products are governed by the

Federal Food Security Act.23




farm products 4. Ordinary purchase (from

inventory)▪ “business of selling goods of the kind”▪ But, not a pawn shop.

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farm products 4. Ordinary purchase (from

inventory) 5. Security interest created by

seller▪ Not a security interest created by the

seller’s seller.

25


Purchaser wins if purchaser is a buyer in the ordinary course of business. 1. Good faith 2. Without knowledge of security interest

violation 3. Purchased goods that are not farm

products 4. Ordinary purchase (from inventory) 5. Security interest created by seller 6. New value

▪ Not to pay for a preexisting debt.

26


27


Purchaser wins if purchaser is a buyer in the ordinary course of business. 1. Good faith 2. Without knowledge of security interest

violation 3. Purchased goods that are not farm

products 4. Ordinary purchase (from inventory) 5. Security interest created by seller 6. New value 7. Creditor not perfected by possession

28


Purchaser wins if purchaser is a buyer in the ordinary course of business.

Problem 331 – p. 898 Problem 332 – p. 903 Problem 333 – p. 904 Problem 334 – p.909 Problem 341 – p. 925

29

Secured creditor vs. HDC

HDC wins as takes free of all claims.


30


Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer.

31


Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. 1. Consumer goods in seller’s

hands

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hands 2. Consumer goods in buyer’s

hands

33




hands 3. Buyer has no knowledge of

security interest

34





security interest 4. Buyer pays value

35





security interest 4. Buyer pays value 5. Creditor not perfected by

possession

36





security interest 4. Buyer pays value 5. Creditor not perfected by

possession 6. Creditor’s interest is unfiled

prior to purchase

37


Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer.

Problem 336 – p. 910 Problem 337(a) – p. 911

38


Purchaser wins if secured creditor unperfected at time of purchase if:

1. Purchaser paid value (not a gift),

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2. Purchaser took delivery of the collateral, and

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2. Purchaser took delivery of the collateral,

3. Purchaser had no knowledge of the security interest at time of delivery, and

41


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1. Purchaser paid value (not a gift), 2. Purchaser took delivery of the

collateral, 3. Purchaser had no knowledge of the

security interest at time of delivery, and

4. Creditor did not use PMSI 20-day grace period to perfect.

43



Problem 337(b) – p. 911 Problem 338 – p. 911

44


Purchaser wins if secured creditor gave debtor permission to sell. Problem 337(c) – p. 911

45

Secured Creditor vs. Statutory Mechanics Lien

46


Statutory mechanics lien wins if:

1. Lien holder furnished services or materials with respect to the collateral,

47




2. Furnishing was in ordinary course of business, and

48




2. Furnishing was in ordinary course of business, and

3. Collateral is in possession of lien holder

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50

Fixture Priority

Ordinary building materials transform from goods to real property so prior Article 9 interests are gone. 51

Fixture Priority

So related to the real estate that an interest in it arises under real estate law

52

Fixture Priority

General Rule – Secured creditor wins only if: 1. Perfected before the real estate

interest is recorded,

53

Fixture Priority

General Rule – Secured creditor wins only if: 1. Perfected before the real estate

interest is recorded, and

2. Perfected using a fixture filing [a financing statement that describes land and is filed in land records where land is located]

54

Fixture Priority

Special rule for purchase-money security interest – PMSI creditor can defeat a prior recorded real property interest if:

55

Fixture Priority

Special rule for purchase-money security interest – PMSI creditor can defeat a prior recorded real property interest if: 1. PMSI creditor perfected with

fixture filing,

56

Fixture Priority


fixture filing, 2. PMSI creditor perfected with 20

days of installation, and

57

Fixture Priority


fixture filing, 2. PMSI creditor perfected with 20

days of installation, and 3. Real property interest is not a

construction mortgage.58

Fixture Priority

Special rule for purchase-money security interest

Problem 349 – p. 941 Problem 353 – p. 946 Problem 354 – p. 946

59

Fixture Priority

Special rule for readily removable collateral: Factory or office machines Equipment not primarily used in the

operation of the real property Replacements of consumer goods or

domestic appliances.

Perfected before became fixtures by any method defeats real property interest.

60

Fixture Priority

Special rule for readily removable collateral:

Problem 350 – p. 942 Problem 352 – p. 946

61

Fixture Priority

Special rule for judicial liens:

A security interest in fixtures that is perfected in any manner prevails over a later-acquired judicial lien.


62

Fixture Priority

Special rule for transmitting utilities:

Railroads, subways, etc. Electricity, phone, etc. Pipeline (water, sewer,

oil, gas, etc.)

Just one filling in Secretary of State’s office is needed.

Problem 348 – p. 941 63

Crops

• Perfected interest in crops defeats a real property interest.

• Problem 355 – p. 95164

Manufactured Housing


65

Accessions – defined

Goods physically united with other goods but identity of original goods not lost.

66

Accessions – General Rule

67

New hard drive

Notebookcomputer

Normal priority rules apply between security interests in the whole (computer) and the accession (new hard drive).

Accessions – Exception if whole covered by certificate of title

68

• Creditor with COT perfection in the whole (car) prevails over creditor with security interest in the accession (engine).

• Problem 357 – p. 952

New engine

car

Commingling

69

Goods combined so that they cannot be separated.

Commingling

Security interests in the original goods are lost.

But a security interest arises in the mass.

If perfected in original, perfected in the mass.

Priority rules in § 9-336(f) [not tested].

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Federal Tax Lien

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Federal Tax Lien – Generally

Lien covers all of taxpayer’s property.

Elements of Federal Tax Lien: 1. Taxpayer fails to pay tax. 2. IRS makes demand for payment. 3. Taxpayer does not pay.

72

Federal Tax Lien – Basic Priority Rules

Creditor unperfected = tax lien prevails

Creditor perfected before tax lien filed = creditor prevails.

Tax lien filed before creditor perfected = tax lien prevails. Exception – PMSIs prevail over prior filed

tax lien Problem 359 – p. 971

73

Federal Tax Lien – After-acquired property rule

A creditor with an after-acquired property clause can prevail if: Security agreement entered into

before tax lien filing,

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before tax lien filing, Creditor without knowledge of tax

lien when loan made,

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before tax lien filing, Creditor without knowledge of tax

lien when loan made, Debtor obtains the after-acquired

property within 45 days of the tax lien filing,

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A creditor with an after-acquired property clause can prevail if: Security agreement entered into before

tax lien filing, Creditor without knowledge of tax lien

when loan made, Debtor obtains the after-acquired property

within 45 days of the tax lien filing, and Collateral is inventory, accounts

receivable, or commercial paper (not equipment).

77


A creditor with an after-acquired property clause can prevail if: Security agreement entered into before tax

lien filing, Creditor without knowledge of tax lien

when loan made, Debtor obtains the after-acquired property

within 45 days of the tax lien filing, and Collateral is inventory, accounts receivable,

or commercial paper (not equipment). Problem 358 – p. 963

78

Federal Tax Lien – Future Advance Rule

A secured creditor who was perfected before the tax lien was filed, will lose priority for future advances (not the prior advances) upon the first of: Secured creditor obtaining

knowledge of the tax lien, or 45 days elapsing from the date of

tax lien filing.

Problem 360(a) – p. 97279

Other future advance situations

Non-BIOCOB

Lien Creditor

80

Buyers not in ordinary course v. Future advances

The buyer not in the ordinary course of business can prevail over future advances if either:

The secured credit knows of the purchase, or

45 days have elapsed since the date of the purchase.

Problem 360(b) – p. 97281

Lien creditors vs. future advances

The secured creditor will lose priority to a lien creditor for future advances after both:

The secured creditor has knowledge of the lien, and

45 elapse from the date of the lien.

Problem 360(c) – p. 972

82

1. 1. Classify the persons claiming the collateral. 2. Apply appropriate priority rules. 2.

Documents

Transcript of 1. 1. Classify the persons claiming the collateral. 2. Apply appropriate priority rules. 2.