Security Interests Flashcards
Finance Company has a superior claim to the 25 vehicles in which it has a security interest because its interest is perfected, and Bank’s is not. Where a motor vehicle certificate-of-title statute calls for perfection by notation on the certificate of title, the filing of a financing statement will not perfect an interest in the vehicles.
Debtor’s fleet of delivery trucks is “equipment” for purposes of Article 9. See UCC § 9-102(a) (33). Bank has a security interest in that equipment. However, the facts tell us that the delivery trucks are subject to a certificate-of-title statute that provides for perfection by notation of a secu-rity interest on the certificate of title. Filing a financing statement is “not . . . effective to perfect a security interest in property subject to” such a statute. UCC § 9-311(a)(2). Thus, Bank did not perfect its interest in Debtor’s delivery trucks by filing a financing statement.
Finance Company, on the other hand, did perfect its interest in the 25 trucks by complying with the applicable certificate-of-title statute and noting its interest on the certificates of title. See UCC § 9-311(b). Thus, Finance Company’s perfected security interest in the 25 trucks is superior to Bank’s unperfected interest.
Once the GPS units were attached to Debtor’s delivery trucks, they became accessions to those motor vehicles. Nonetheless, Global’s interest in the GPS units continues after their attachment to the delivery trucks.
Where, as here, “goods . . . are physically united with other goods in such a manner that the identity of the original goods is not lost,” the goods become accessions. UCC § 9-102(a)(1). A security interest in goods that is created and perfected before the goods become accessions continues after the goods become accessions. UCC § 9-335(a) & (b). Thus, Global’s perfected security interest in the GPS units continued despite the fact that the units were attached to Debtor’s trucks.
When the collateral of one creditor becomes united with the collateral of another, each creditor’s collateral is an “accession” to the other creditor’s collateral, and the two items of collateral together are regarded as “the whole.” Whether either creditor’s security interest applies to “the whole,” or applies only to its original collateral, “turns on the description of the collateral in [that creditor’s] security agreement.”
In this case, Global’s security interest in the GPS units certainly does not cover “the whole” (i.e., delivery trucks with GPS units installed).
On the other hand, Finance Company’s described security interest in the specifically identified delivery trucks expressly includes all installed accessories and therefore covers the GPS units.
Finance Company’s interest in the delivery trucks and installed GPS units is superior to Global’s interest in the GPS units.
The priority rules governing accessions are normally the same as the rules for other collateral. See UCC § 9-335(c). However, as it does in other places, Article 9 makes an exception when, as here, there is an applicable certificate-of-title statute. UCC § 9-335(d) provides that “[a] security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of a certificate-of-title statute.
Thus, Global’s security interest in the GPS units installed in the trucks claimed by Finance Company is subordinate to Finance Company’s claim, which was perfected by notation on the trucks’ certificates of title. The policy rationale for preferring Finance Company in these circum-stances is to “enable[] a secured party to rely upon a certificate of title without having to check the UCC files to determine whether any components of the collateral may be encumbered.”
Global’s purchase-money security interest prevails over Bank’s conflicting security interest in the remaining GPS units.
Bank’s perfected security interest covers inventory and equipment, including after-acquired equipment and inventory. The GPS units are “goods” that are properly classified as equipment because they are not inventory, farm products, or consumer goods. The after-acquired collateral clause in Bank’s security agreement is valid, see UCC § 9-204(a), and Bank’s priority dates to the time it filed its financing statement covering equipment, see UCC § 9-322(a) (1), even though its interest in the GPS units did not attach or perfect until Debtor acquired rights in the units. Thus, Bank has a perfected security interest in the GPS units.
Global, however, has a purchase-money security interest in the GPS units. A security interest in goods is a purchase-money security interest if the collateral “secures a purchase-money obligation incurred with respect to that collateral.” UCC § 9-103(a)(1) & (b)(1). Global’s interest in the GPS units secures a purchase-money obligation—the $40,000 debt to Global that Debtor incurred “as all or part of the price of the collateral.” See UCC § 9-103(a)(2). Hence, the security interest is a purchase-money security interest. Global promptly filed a financing statement and its interest was perfected as soon as Debtor obtained possession of the GPS units.
A purchase-money security interest in equipment that is perfected when the debtor takes possession of the collateral prevails over a conflicting perfected interest in the same equipment, even if the conflicting interest is earlier in time. UCC § 9-324(a). Thus, although Bank’s priority dates to June 1, its interest is nonetheless subordinate to Global’s later-in-time purchase-money security interest.
