Drills 31-59 Flashcards
As between a perfected secured creditor and a statutory lien claimant, who has priority in a dispute over the same collateral?
A statutory lien claimant has priority over a perfected secured creditor provided:
(1) The lienholder has possession the goods; and
(2) The lien secures payment or performance of an obligation for services or materials furnished in the ordinary course of the person’s business (e.g., a mechanic’s lien).
Typically, a secured party must give authenticated notice of disposition to a variety of parties. When is notice not required?
A secured party is not required to send a notice of disposition when:
(1) The collateral is perishable or threatens to decline speedily in value;
(2) The collateral is customarily sold on a recognized market; or
(3) Notice is waived by an authenticated agreement after default.
Where must a financing statement be filed?
Generally, the financing statement must be filed with the Secretary of State (“central filing”) of the state of the debtor’s location.
A security interest in a ________ can be perfected only by control.
deposit account
Under what circumstances does the same office rule extend temporary perfection?
Under the same office rule, temporary perfection in proceeds may continue indefinitely if:
(1) A filed financing statement covers the original collateral;
(2) The proceeds are collateral in which a security interest may be perfected by filing in the same office as the original financing statement; and
(3) The proceeds are not acquired with cash proceeds.
(E.g., Lender filed a financing statement covering candle inventory. The candles are sold on credit to Boutique generating an account (which is the proceeds of the inventory). Those proceeds and the original inventory would be perfected by filing in the same office, and the account was not acquired with cash proceeds. Lender is perfected in the account without having to file a new financing statement.)
When can perfection occur as it relates to attachment?
Perfection can happen after attachment or at the same time - but not before.
Who has priority in a car radio that had been installed in a vehicle that was perfected under a certificate-of-title statute?
A security interest in an accession is usually subject to general priority rules. However, a security interest in an accession is subordinate to a security interest in the whole collateral if that collateral was perfected under a certificate-of-title statute. Here, the radio was installed in a vehicle that was perfected under a certificate-of-title statute. Therefore, the security interest in the car radio is subordinate to the holder of the lien noted on the title certificate of the vehicle.
As between a secured party and a judicial lien creditor, who has priority?
A judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest.
A PMSI in what type of goods automatically perfects upon attachment?
A PMSI in consumer goods automatically perfects upon attachment. (A PMSI in other types of goods (e.g., inventory, equipment) or automobiles does not automatically perfect.)
Does a perfected security interest have priority over an earlier created but unperfected security interest in the same collateral?
Yes, the perfected security interest has priority of over an earlier created but unperfected security interest in the same collateral.
A PMSI in fixtures has priority over a prior interest in the real property with which they are associated when what two things occur?
(1) The debtor has an interest in the real property (owner) or is in possession (lessee); and
(2) The security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
Explain the “garage sale” exception to the general rule that unless the secured party authorizes the sale free and clear of its security interest, a buyer takes subject to a perfected security interest.
Is there an exception to this exception?
A buyer of consumer goods will take free of a security interest even if it is perfected, if the buyer buys consumer goods for value, from a consumer seller, it’s for his own personal, family, or household use, and it’s without knowledge of the security interest.
However, if the party holding a PMSI in consumer goods filed a financing statement covering those goods before the consumer to consumer purchase occurred, then the secured party’s security interest will be good against the consumer buyer. (Recall that a PMSI in consumer goods is automatically perfected and filing is not required. By filing regardless of automatic perfection, the secured party protects his priority in the event of a consumer to consumer purchase of the covered goods.)
The general rule for a perfected security interest versus another perfected security interest in the same collateral is that the first to file or perfect has priority. In essence, this rule rewards the earlier _________.
Filer.
In essence, this rule rewards the first to file - even if the other party was first to attach or first to perfect. In other words, if both parties perfected by filing, the first party to file wins whether or not perfection was actually complete when the filing took place. Furthermore, if two parties perfected at the same time, but one party perfected by filing and the other party perfected using another means (control or possession), the party that perfected by filing wins.
Once there has been a default, the secured party can repossess the collateral in what two ways?
(1) By use of judicial process (e.g., replevin action); or
(2) Self-help repossession
What is the general rule for a security interest in fixtures versus a real property interest to which it is associated?
The general rule is that a security interest in fixtures is subordinate to a conflicting interest of an owner of the related real property (other than the debtor).
In order for a security interest in a fixture to have priority over an interest in the real property, what must happen?
For a security interest in fixtures to have priority over an interest in real property, the secured party must file a fixture filing before the real property interest is recorded. (A fixture filing is a financing statement covering goods that are or are to become fixtures.) It must be filed in the office designated for the recording of a mortgage on the related real property (i.e., local real property records)
If a secured party holding a subordinate security interest in a piece of collateral reposseses and sells that collateral, what happens to the senior, or superior, security interests in that collateral?
Senior, or superior, security interests survive the sale. In other words, the superior security interest continues in the collateral in the hands of whoever bought, leased, or licensed it in the foreclosure sale (buyer or transferee takes it subject to the senior security interest).
How do you determine priority when there is an unperfected security interest versus another unperfected security interest in the same collateral?
The first to attach takes priority.
Self-help repossession cannot “breach the peace,” which is not defined by Article 9 and is left up to the courts. What self-help measures are typically deemed acceptable by courts?
A trespass with respect to the collateral itself (e.g., entering a car or other vehicle), or the debtor’s land (e.g., seizing a car from the debtor’s driveway [but not the garage or residence]) are generally deemed acceptable means of self-help repossession that do not breach the peace.
What is the priority rule for a PMSI in goods (other than inventory or livestock)?
This PMSI will prevail over all other security interests in the same collateral, even if those other security interests were previously perfected (e.g., an existing after-acquired equipment clause by a lender), so long as the security interest is perfects before or within 20 days after the debtor receives possession of the collateral.
What is the priority rule for a lender with a PMSI versus a seller with a PMSI?
The seller PMSI beats the lender PMSI. (In other words, the seller of collateral has priority over the lender whose loan enabled the purchase of the collateral.)
What is the rule regarding construction mortgages and subsequent security interests in fixtures?
A construction mortgage has priority over any subsequent security interest in fixtures, including PMSIs in fixtures, if it is recorded before the goods become fixtures, and it covers only those goods that become fixtures before completion of the construction.
“Default” is not defined by Article 9. Typically, parties to a security agreement agree to what circumstances give rise to a default. In the absence of such an agreement, what event gives rise to a default?
In the absence of an agreement between the parties, the only event of default will be the failure of the obligor to make timely payments to the secured party.
Upon default, what happens when a secured party has priority in an accession?
The secured party with priority in the accession is allowed to remove the accession from the other goods (i.e., if the security interest in the accession has priority over the claims of every person having an interest in the whole). A secured party that removes an accession from other goods must reimburse the holder of a security interest or the owner of the whole for physical injury to the whole or other goods.
Note: A security interest in a car radio is subordinate to a security interest in the car perfected by notation of the security interest on the title to the car.
