23 COMPETITIONS FOR COLLATERAL - Secured Creditors v. Secured Creditors Flashcards
What is the basic rule governing priority among non-purchase money security interests?
§9-322(a)(1)
The first to file or perfect has priority.
What is the basic rule governing priority among purchase money security interests?
§9-324(a)
A PMSI in collateral other than inventory has priority over a conflicting security interest in the same collateral if the PMSI is perfected not later than 20 days after the debtor receives possession of the collateral.
What is the double debtor problem?
The “Double debtor problem” is a term used to refer to the conflict between the security interests of two secured parties when a First Debtor sells collateral subject to a security interest of First Creditor to a Second Debtor who has granted a general floating lien to Second Creditor.
What is the circular priority problem?
Circular priority problems are endemic in secured transaction law. A circular priority situation arises when there are three or more parties with competing claims to the same asset and there is no clear ranking of priority among them.
What is the exception to the the basic rule governing priority among non-purchase money security interests?
§9-325
Within the context of the double debtor problem, §9-325 subordinates security interests perfected against a transferee to those perfected against a transferor. This is true even where the collateral was covered by a PMSI (§9-325 Comment 3).
(4) Elements:
- debtor acquired collateral subject to security interest created by another person
- security interest by the other person was perfected when the debtor acquired the collateral
- there is no period thereafter when the security interest is unperfected.
(*Subject to limitations under §9-325(b))
What are the priority of interests in a deposit account?
SC w/o control < SC w/ Control:
A secured creditor with a security interest held by a secured party having CONTROL of the deposit account under section §9-104 has priority over a conflicting security interest held by a secured party that does not have control.
Generally, security interests perfected by control rank according priority in time of obtaining control.
Exception: If the bank maintaining the deposit account holds the security interest, it has priority over a conflicting security interest held by another secured party.
Exception to exception: unless that secured party has control of the deposit account because the secured party is a customer of the bank.
In the context of the double debtor problem, what are a secured party’s rights (generally) on disposition of collateral and in proceeds?
§9-315
Collateral:
- security interest continues notwithstanding disposition unless the secured party authorized the disposition free of the security interest;
Proceeds:
- a security interest attaches to any identifiable proceeds of the collateral
- a security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected (subject to continuation of perfection requirements under 9-315(d))
In the context of the double debtor problem, is the original financing statement effective after the debtor sells the collateral w/o consent of the secured creditor?
§9-507(a)
Yes the original financing statement is still effective. Also it is effective even if the secured party knows or consents to the disposition. The secured party remains perfected even if it does not correct the public record. This is the reason why a person seeking to determine whether a debtor owns collateral free and clear must inquire as to the debtor’s source of title, and if required, search in the name of a former owner.
(a) Will the secured creditor have to file a new financing statement in the following situation?
1 year ago $75k loan:
A secured creditor has a signed Security Agreement (SA) which indicates the specific collateral (x) and any “substitutions, replacements or accessions.” The SA has no provision regarding future advances. A financing statement indicating the collateral was (X).
Today $400k loan:
New line of credit. Scope of the collateral (X) remains the same, but quantity of it (x) increases. A new promissory note and a new SA are prepared.
Note: (x) computer; (X) equipment
(a) No need to file a new financing statement if collateral is included in all categories of financing statement - new loan will relate back to that financing statement.
S.A. must include a reference to after-acquired collateral (F/S doesn’t).
UCC §§9-108(b)(3), 9-322(a)(1), 9-502(d).
What is the rule for priority over future advances between two A9 secured creditors?
Shutze:
provided only that F/S “covers the collateral” all advances made by secured creditor to the debtor have priority as of the filing of the financing statement.
How can a lender protect herself from a future advance provision?
A subordination agreement with the holder of the first interest. See §9-339.
