Sec. Trans. Priorities & Default

Question 1

General rule for priority of security interests:

Answer 1

“First in time, first in right.”

Question 2

Among unperfected security interests:

Answer 2

The first security interest to attach will prevail

Question 3

Priority of Perfected over unperfected security interests:

Answer 3

Perfected will prevail over unperfected.

Question 4

Priority of two perfected interests:

Answer 4

The security interest with the earlier time of filing OR perfection, and which was continued without interruption, will prevail.

Question 5

A perfected Purchase Money Security Interest in goods (and its identifiable proceeds) will prevail over a conflicting security interest if:

Answer 5

The PMSI is perfected when the debtor receives possession of the collateral or within 20 days thereafter. In other words, the holder of a PMSI in goods has a second-in-time, first-in-right priority.

Question 6

Exception for Purchase Money SI where there is inventory:

Answer 6

The secured party has to take additional steps to acquire priority over the first-int-time secured party.
The PMSI party must send an authenticated notification to the holder of the conflicting security interest.

Question 7

What rule applies to priority contests between lien creditors and secured parties?

Answer 7

First-in-time, first-in-right

Question 8

Special rule for PMSIs and lien creditors:

Answer 8

If the PMSI is perfected within 20 days after the debtor receives the collateral, the PMSI will take priority over an intervening lien creditor whose rights arise between the time the security interest attaches and the time of filing.

Question 9

A security interest in an accession is subordinate to:

Answer 9

a security interest in the whole that is perfected by compliance with the requirements of a certificate of title statute (ex: motor vehicle). Otherwise, the priority of a security interest in accession is determined in the same manner as in any other collateral.

Question 10

Priority of commingled goods:

Answer 10

Multiple perfected security interests in commingled goods will rank equally in proportion.

Question 11

Generally, a security interest survives a sale of collateral. But, there are several exceptions:

Answer 11

1) Consent of secured party
2) Buyer in the ordinary course of business takes free of a security interest created by the seller if: a) buys goods in good faith; b) buys w/o knowledge that the sale violates the rights of another person in the goods; and c) buys in the ordinary course from a person in the business of selling goods of that kind. (Think Best Buy selling tvs w/ a Bank having a security interest. Bank cannot get the tv back from the purchaser if Best Buy defaults).

Question 12

Consumer-to-consumer or garage sale exception to continuing security interest:

Answer 12

A person buys goods from a person who used or bought the goods for use primarily for personal, family, or household use and did so a) without knowledge of the security interest; b) for value; c) primarily for the buyer’s personal, family, or household purposes; and d) before the filing of a financing statement covering the goods (remember that a PMSI in consumer goods can be perfected without filing a financing statement)

Question 13

Buyers of chattel paper

Answer 13

have priority over any other security interest in the chattel paper if he gives new value and takes possession or obtains control in good faith

Question 14

Special rules for fixtures in priority:

Answer 14

Generally, a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor. Usually first-in-time, first-in-right.

Question 15

In Florida, an assignment of a security interest in a fixture covered by a real property mortgage that is effective as a fixture filing under Florida law:

Answer 15

may be made only by an assignment of record of the mortgage.

Question 16

PMSI in Fixtures - exception for priority:

Answer 16

Second-in-time, first-in-right priority applies so long as the security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.

Question 17

Florida rule for PMSI in fixtures:

Answer 17

Takes priority as to the goods over the conflicting interest of an encumbrancer or owner of the related real property arising subsequent to the perfection of such security interest or the affixing of the goods to the real property, whichever occurs later.

Question 18

A default occurs when:

Answer 18

the debtor fails to tender an obligation when due

Question 19

Upon default, a secured party may:

Answer 19

reduce a claim to judgment, foreclose, or otherwise enforce the claim. The secured party has the right to repossess tangible collateral if it can do so without a breach of the peace.

Question 20

An entry into a home to repossess collateral will:

Answer 20

always be considered a breach of the peace.

Question 21

For repossessing collateral that would cause a breach of the peace, the secured party will:

Answer 21

be required to bring an action for replevin, under which the sheriff can seize the property for the secured party

Question 22

If collateral consists of accounts receivable, instruments, or chattel paper, the secured party may:

Answer 22

notify the person obligated on the collateral to make payment to the secured party. The notification must be authenticated by the secured party or the debtor; and reasonably identify the rights assigned.

Question 23

A debtor has a right to redeem the collateral by:

Answer 23

tendering to the secured party the amount of the obligation, including interest, together with reasonable expenses and attorney’s fees caused by the default.

Question 24

Redemption must be effected before:

Answer 24

the collateral has been collected; the secured party has disposed of the collateral or has entered into a K for its disposition; or the secured party has accepted the collateral in full or partial satisfaction of the obligation.

Question 25

A debtor may waive his right to redeem

Answer 25

by an agreement entered into and authenticated after the default. Cannot be made in advance of default.

Question 26

A debtor may not waive the right to redeem in:

Answer 26

a consumer goods transaction.

Question 27

Disposition of the interest after default must be:

Answer 27

commercially reasonable

Question 28

Before disposing of collateral, the secured party must:

Answer 28

send to the debtor and any secondary obligor a reasonable authenticated notification of disposition.

Question 29

The timing of a notice of disposition is reasonable if:

Answer 29

sent after default and 10 days or more before the earliest time of disposition

Question 30

Notice is an element of reasonableness, therefore, if no notice sent:

Answer 30

the sale may be considered commercially unreasonable

Question 31

If the collateral does not bring enough at sale or collection to pay all outstanding obligations, the secured party is entitled to:

Answer 31

a judgment for the deficiency except where the underlying transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes

Question 32

If a sale is conducted in a commercially unreasonable manner, the deficiency can be reduced according to the:

Answer 32

rebuttable presumption rule.