TBE--UCC (Sec Txn)

Question 1

02/14 #3:
On July 2, 2013: Electronics borrowed $50k from First Bank to finance inventory. Electronics president signs p/n and s/a giving First Bank s/i in Electronics’ current and after-acquired inventory.

On July 3, 2013: First bank filed a f/s with Tx Sec of State.

On Feb 3, 2014: Electronics ordered 10 notebook computers on credit from Bell. Electronics signed s/a giving Bell s/i in 10 notebook comp. Bell filed f/s with Tx Sec. of State on Feb 8, 2014 and delivered computers to Electronics the next day.

Electronics sold 1 computer to Pat on Feb 18, 2014 to use in his business as accountant. Pat paid for computer by check for $1k. Electronics hasn’t deposited Patrick’s $1k check.

Electronics has defaulted on its obligations to First Bank and Bell.

Between Electronics, First Bank, Bell and Patrick, who has superior interest in 9 notebooks still in Electronics’ inventory?

Answer 1

The issue is who has the superior interest in inventory when there is a perfected creditor who filed first in after-acquired inventory and a perfected creditor with a PMSI in inventory who filed before the debtor took possession of the collateral but did not give notice to other creditors.

Under the U.C.C., when two perfected creditors have an interest in the same collateral, the first to perfect or file a financing statement has the superior interest.

However, a creditor who has a Purchase Money Security Interest (PMSI) in the collateral has a superior interest to a non-PMSI creditor.

To have a PMSI, the creditor must loan the debtor money, and the debtor must give a security interest to the creditor in the exact collateral that was purchased from that loan money.

For a creditor with a PMSI in inventory, the creditor must file the financing statement before the debtor takes possession of the collateral, or within 20 days of the debtor taking possession. The creditor must also file notice to any creditor’s with a competing interest in the collateral, describing the collateral. Inventory is collateral that is used for sale by a business.

Question 2

02/14 #3:
On July 2, 2013: Electronics borrowed $50k from First Bank to finance inventory. Electronics president signs p/n and s/a giving First Bank s/i in Electronics’ current and after-acquired inventory.

On July 3, 2013: First bank filed a f/s with Tx Sec of State.

On Feb 3, 2014: Electronics ordered 10 notebook computers on credit from Bell. Electronics signed s/a giving Bell s/i in 10 notebook comp. Bell filed f/s with Tx Sec. of State on Feb 8, 2014 and delivered computers to Electronics the next day.

Electronics sold 1 computer to Pat on Feb 18, 2014 to use in his business as accountant. Pat paid for computer by check for $1k. Electronics hasn’t deposited Patrick’s $1k check.

Electronics has defaulted on its obligations to First Bank and Bell.

Between Electronics, First Bank, Bell and Patrick, who has superior interest in the notebook computer sold to Patrick?

Answer 2

The issue is who has the superior interest in sold inventory when a creditor is perfected and secured in inventory, but a buyer purchases the inventory within the ordinary course of business.

Under the U.C.C., a buyer in the ordinary course of business (BIOC) has a superior interest over a perfected and secured creditor.

To be a buyer in the ordinary course of business, the buyer must give value, have no notice of a security agreement, the creditor must not have possession of the collateral, the item must be an item that the seller sells in its ordinary course of business, and the buyer must purchase it in the ordinary course of business.

Question 3

02/14 #3:
On July 2, 2013: Electronics borrowed $50k from First Bank to finance inventory. Electronics president signs p/n and s/a giving First Bank s/i in Electronics’ current and after-acquired inventory.

On July 3, 2013: First bank filed a f/s with Tx Sec of State.

On Feb 3, 2014: Electronics ordered 10 notebook computers on credit from Bell. Electronics signed s/a giving Bell s/i in 10 notebook comp. Bell filed f/s with Tx Sec. of State on Feb 8, 2014 and delivered computers to Electronics the next day.

Electronics sold 1 computer to Pat on Feb 18, 2014 to use in his business as accountant. Pat paid for computer by check for $1k. Electronics hasn’t deposited Patrick’s $1k check.

Electronics has defaulted on its obligations to First Bank and Bell.

Between Electronics, First Bank, Bell and Patrick, who has superior interest in the $1k check given by Patrick to pay for the computer?

Answer 3

The issue is who has the superior interest in proceeds from the sale of inventory when it is within 20 days of the payment.

A perfected, secured creditor has temporary perfection from the proceeds of the sale of any collateral it has a perfected security interest in for 20 days. It must file a financing statement over the proceeds within the 20 days, or it loses its perfection.

Question 4

07/13 #4:
Landscape is a Tx Corp.

Jan 3, 2013: Landscape borrowed $1k from C and promised to repay in 6 months, gave C a lawnmower as collateral until loan repaid. C still has lawnmower. C never filed anything.

Jan 15, 2013: Landscape borrowed $10k from Bank. Landscape signed p/n and s/a giving Bank s/i in “all equip and tools now owned/hereafter acquired.”At the time, Landscape owned lawnmower and wheelbarrows, shovels, rakes. Bank properly perfected its s/i on Jan 15 by filing f/s with Tx Sec of State.

Feb 15, 2013: Landscape reorganized, changed name to “Builder.” Same day, Landscape’s owner changed name on checking account at Bank from “Landscape” to “Builder.”

March 30, 2013: Builder paid cash for and took deleivery of table saw from Equipment.

April 1, 2013: Builder purchased from Lumber on credit plywood. Builder gave Lumber p/n and s/a covering plywood. Lumber has not filed f/s.

April 15, 2013: Builder purchased from Tools on credit hand tools. Builder gave p/n and s/a covering hand tools. Tools properly perfected its s/i on April 16, 2013 by filing f/s with Tx Sec of State.

July 15, 2013: Builder can’t pay.

Among C, Bank, Equipment, Lumber, Tools, which has priority over The lawnmower?

Answer 4

Under Texas law, attachment requires

(1) value given by the creditor,
(2) a contract (security agreement, usually), and
(3) the debtor has rights in the collateral.

Perfection requires attachment as well as an act of perfection, including the signing and filing of a financing statement.

For most kinds of property, attachment can occur through possession, where the creditor takes possession of the property. Possession can also constitute an act of perfection

. As between two secured perfected creditors, the first to (1) file a financing statement, or (2) perfect prevails.

Question 5

07/13 #4:
Landscape is a Tx Corp.

Jan 3, 2013: Landscape borrowed $1k from C and promised to repay in 6 months, gave C a lawnmower as collateral until loan repaid. C still has lawnmower. C never filed anything.

Jan 15, 2013: Landscape borrowed $10k from Bank. Landscape signed p/n and s/a giving Bank s/i in “all equip and tools now owned/hereafter acquired.”At the time, Landscape owned lawnmower and wheelbarrows, shovels, rakes. Bank properly perfected its s/i on Jan 15 by filing f/s with Tx Sec of State.

Feb 15, 2013: Landscape reorganized, changed name to “Builder.” Same day, Landscape’s owner changed name on checking account at Bank from “Landscape” to “Builder.”

March 30, 2013: Builder paid cash for and took deleivery of table saw from Equipment.

April 1, 2013: Builder purchased from Lumber on credit plywood. Builder gave Lumber p/n and s/a covering plywood. Lumber has not filed f/s.

April 15, 2013: Builder purchased from Tools on credit hand tools. Builder gave p/n and s/a covering hand tools. Tools properly perfected its s/i on April 16, 2013 by filing f/s with Tx Sec of State.

July 15, 2013: Builder can’t pay.

Among C, Bank, Equipment, Lumber, Tools, which has priority over The wheelbarrows, shovels, rakes?

Answer 5

. At issue is whether Bank’s security agreement properly covers Landscape’s existing equipment and tools.

A proper security agreement must state with adequate specificity what collateral is covered by the agreement. “All equipment” is sufficiently specific.

Question 6

07/13 #4:
Landscape is a Tx Corp.

Jan 3, 2013: Landscape borrowed $1k from C and promised to repay in 6 months, gave C a lawnmower as collateral until loan repaid. C still has lawnmower. C never filed anything.

Jan 15, 2013: Landscape borrowed $10k from Bank. Landscape signed p/n and s/a giving Bank s/i in “all equip and tools now owned/hereafter acquired.”At the time, Landscape owned lawnmower and wheelbarrows, shovels, rakes. Bank properly perfected its s/i on Jan 15 by filing f/s with Tx Sec of State.

Feb 15, 2013: Landscape reorganized, changed name to “Builder.” Same day, Landscape’s owner changed name on checking account at Bank from “Landscape” to “Builder.”

March 30, 2013: Builder paid cash for and took delivery of table saw from Equipment.

April 1, 2013: Builder purchased from Lumber on credit plywood. Builder gave Lumber p/n and s/a covering plywood. Lumber has not filed f/s.

April 15, 2013: Builder purchased from Tools on credit hand tools. Builder gave p/n and s/a covering hand tools. Tools properly perfected its s/i on April 16, 2013 by filing f/s with Tx Sec of State.

July 15, 2013: Builder can’t pay.

Among C, Bank, Equipment, Lumber, Tools, which has priority over The table saw?

Answer 6

At issue is whether Bank’s security agreement adequately covered a table saw acquired after their agreement and after a name change. A security agreement may permissibly cover after acquired equipment and inventory. Additionally, a financing statement filed with the Secretary of State is valid to perfect newly acquired items for four months after a company changes its name and a creditor has notice of the name change.

Question 7

07/13 #4:
Landscape is a Tx Corp.

Jan 3, 2013: Landscape borrowed $1k from C and promised to repay in 6 months, gave C a lawnmower as collateral until loan repaid. C still has lawnmower. C never filed anything.

Jan 15, 2013: Landscape borrowed $10k from Bank. Landscape signed p/n and s/a giving Bank s/i in “all equip and tools now owned/hereafter acquired.”At the time, Landscape owned lawnmower and wheelbarrows, shovels, rakes. Bank properly perfected its s/i on Jan 15 by filing f/s with Tx Sec of State.

Feb 15, 2013: Landscape reorganized, changed name to “Builder.” Same day, Landscape’s owner changed name on checking account at Bank from “Landscape” to “Builder.”

March 30, 2013: Builder paid cash for and took deleivery of table saw from Equipment.

April 1, 2013: Builder purchased from Lumber on credit plywood. Builder gave Lumber p/n and s/a covering plywood. Lumber has not filed f/s.

April 15, 2013: Builder purchased from Tools on credit hand tools. Builder gave p/n and s/a covering hand tools. Tools properly perfected its s/i on April 16, 2013 by filing f/s with Tx Sec of State.

July 15, 2013: Builder can’t pay.

Among C, Bank, Equipment, Lumber, Tools, which has priority over The plywood?

Answer 7

At issue is whether an unperfected secured creditor can have priority in plywood over a perfected creditor in equipment. A creditor validly attaches when he gives value, has a security agreement, and the debtor has rights to the collateral. Here, the plywood is inventory, because Builder will use it to create the houses – its product. A purchase money security interest in inventory is only perfected with priority with the creditor provides notice to all other creditors with an interest in inventory because the security interest attaches.

Question 8

07/13 #4:
Landscape is a Tx Corp.

Jan 3, 2013: Landscape borrowed $1k from C and promised to repay in 6 months, gave C a lawnmower as collateral until loan repaid. C still has lawnmower. C never filed anything.

Jan 15, 2013: Landscape borrowed $10k from Bank. Landscape signed p/n and s/a giving Bank s/i in “all equip and tools now owned/hereafter acquired.”At the time, Landscape owned lawnmower and wheelbarrows, shovels, rakes. Bank properly perfected its s/i on Jan 15 by filing f/s with Tx Sec of State.

Feb 15, 2013: Landscape reorganized, changed name to “Builder.” Same day, Landscape’s owner changed name on checking account at Bank from “Landscape” to “Builder.”

March 30, 2013: Builder paid cash for and took deleivery of table saw from Equipment.

April 1, 2013: Builder purchased from Lumber on credit plywood. Builder gave Lumber p/n and s/a covering plywood. Lumber has not filed f/s.

April 15, 2013: Builder purchased from Tools on credit hand tools. Builder gave p/n and s/a covering hand tools. Tools properly perfected its s/i on April 16, 2013 by filing f/s with Tx Sec of State.

July 15, 2013: Builder can’t pay.

Among C, Bank, Equipment, Lumber, Tools, which has priority over The hand tools?

Answer 8

At issue is which of two perfected creditors has priority in equipment. Generally, between two perfected creditors, the first to file or perfect has priority in the security interest. However, a purchase money security interest in equipment is automatically perfected for 20 days. As long as the interest is perfected some other way within those twenty days, the date of perfection relates back. A validly perfected purchase money security interest has a super priority over previously filed perfected interests.

Question 9

02/13 # 3:
W borrowed desk from G, to use in business, WW. Desk destroyed in fire July 2011. G wants $1k for destroyed desk. W signed and delivered p/n to G for $1k payable July 31, 2012 (W felt coerced to sign).

Aug 15, 2011: W borrows $10k from Bank to reopen business. W signed s/a giving Bank s/i in:
1) current and after-acquired inventory of WW
2) Amount in W’s savings account.
Bank didnt file any documentation regarding its s/i.

September 3, 2011, W borrowed another $5k from Bank signing s/a giving Bank s/i in all equipment owned d subsequently acquired by WW. Bnk filed f/s Sept 4, 2011.

Oct 15, 2011: W borrows another $20k from Loan Comp. W signs s/a giving Loan Comp interest in:
1) savings account at Bank
2) all inventory currently held and after-acquired
3) all equipment owned and after acquired.
Loan Comp files f/s in all required offices Oct 20, 2011.

October 19, 2011: W buys $7k cash for widget machine for business.

December 11, 2011: G indorsed W’s $1k p/n and gave it to Bank to settle $1,500 loan from Bank to G.

One week later, G says to Bank “good luck collecting. I forced W to sign. W will never pay.”

July 31, 2012: Bank presented $1k note to W and demanded payment. W refused. W also defaulted on $5k and $10k notes pyable to Bank and $20k note patable to Loan Comp.

Between Bank and Loan Comp, who has superior interest in:

A) savings account;
B) inventory held by WW;
C) widget machine

Answer 9

NUMBER ONE:
The first question is whether or not the secured parties interests in the savings accounts attached.

For a security interest to attach,

1) there must be a security agreement,
3) the secured party must give value, and
3) the debtor must have rights in the collateral.

The next question is whether or not the parties’ security interests were perfected.

Typically perfection occurs by filing a financing statement.

However, deposit accounts are not perfected by the filing of a financing statement. Rather, deposit accounts are perfected in one of 3 ways:

1. the secured party and the debtor entered into an agreement with the depositary bank that the depositary bank will follow the directions of the secured creditor;
2. the secured creditor becomes the owner of the deposit account, or
3. the funds are maintained at the secured creditor’s bank.

NUMBER TWO:
Inventory is defined under Article 9 as things which are sold as part of a business and any works in progress. These come under the category of goods for purposes of Article 9.

The first question is attachment. As with the savings accounts, there is no indication that the parties interests did not attach. As such, the question is whether or not the parties are perfected.

To perfect in inventory, a secured party must 1) either file a financing statement or
2) have possession.

Furthermore, while a purchase money security interest (pmsi) In goods typically has 20 days after receipt of the goods to perfect to retain priority, this does not apply to inventory. Rather, for inventory the secured creditor must file a financing statement prior to the debtor’s receipt of the inventory, and must notify the other potential creditors of their interest

NUMBER THREE:
At issue is whether the machine is categorized as “equipment,” and whether LoanCo’s loan will be treated as a purchase money security interest.

In Texas, to perfect a security interest, a creditor must normally file a financing statement. There are a number of exceptions, but none of them are applicable to the widget making machine.

The widget making machine is classified as equipment for Wally’s Widgets since it is an item that Wally’s uses in the ordinary course of business. His business being widgets, a widget making machine clearly fits within the definition of equipment.

Where money is given directly for the purchase of particular collateral, it is considered a purchase money security interest (PMSI).

If a creditor obtains a PMSI in after-acquired inventory or equipment, they have 20 days from the date of delivery of the collateral in which their interest is automatically perfected. If they fail to perfect within that 20 day window, their interest becomes unperfected.

Question 10

02/13 # 3:
W borrowed desk from G, to use in business, WW. Desk destroyed in fire July 2011. G wants $1k for destroyed desk. W signed and delivered p/n to G for $1k payable July 31, 2012 (W felt coerced to sign).

Aug 15, 2011: W borrows $10k from Bank to reopen business. W signed s/a giving Bank s/i in:
1) current and after-acquired inventory of WW
2) Amount in W’s savings account.
Bank didnt file any documentation regarding its s/i.

September 3, 2011, W borrowed another $5k from Bank signing s/a giving Bank s/i in all equipment owned d subsequently acquired by WW. Bnk filed f/s Sept 4, 2011.

Oct 15, 2011: W borrows another $20k from Loan Comp. W signs s/a giving Loan Comp interest in:
1) savings account at Bank
2) all inventory currently held and after-acquired
3) all equipment owned and after acquired.
Loan Comp files f/s in all required offices Oct 20, 2011.

October 19, 2011: W buys $7k cash for widget machine for business.

December 11, 2011: G indorsed W’s $1k p/n and gave it to Bank to settle $1,500 loan from Bank to G.

One week later, G says to Bank “good luck collecting. I forced W to sign. W will never pay.”

July 31, 2012: Bank presented $1k note to W and demanded payment. W refused. W also defaulted on $5k and $10k notes pyable to Bank and $20k note patable to Loan Comp.

If BAnk sues W to collect $1k note, does W have any defense on which he can prevail (Comm Paper Answer)?

Answer 10

At issue is whether Bank is a Holder in Due Course, and whether George’s conduct was sufficient to constitute duress.

To qualify as a holder in due course (HDC), Bank must

1) have a negotiable instrument,
2) be a holder,
3) with authenticity of the note not apparently questioned, take
4) for value,
5) in good faith, and
6) notice of any defenses.

Reduced consideration of a past debt is sufficient value to satisfy the holder in due course requirement. And taking without notice only requires that the holder not have notice at the time they obtain the note.

Where a holder is a holder in due course, they are not subject to personal defenses such as failure of consideration or other contracts defenses, but are subject only to the so-called Real Defenses (such as fraud-in-the-factum, forgery, authenticity, adjudicated incapacity, infancy, etc…).

Duress requires such force applied to the maker/drawer that the will of the person originally receiving the note is substituted for the will of the maker/drawer. Courts have found many levels of coercion, manipulation and even threats to fall short of the level of force required to successfully assert duress.

Question 11

07/12 #6:
March 2011: E had business named CopyCo (CC)

April 1, 2011: Printers sold CC a copier on credit. E agreed to sign and return a s/a granting Printers a s/i in the copier, E failed to do so.

May 1, 2011: CC got $20k loan from Bank for CC’s operation signing a p/n. Note to be paid on/before Oct 31, 2011. As collateral, E signed s/a giving Bank s/i in CC’s currently owned and after-acquired furniture, equipment, inventory, and accounts receivable. On May 2, 2011, Bank filed f/s in all required public offices.

June 1, 2011: Technology sold and delivered 5 computers to CC. E, on behalf of CC, signed p/n and s/a granting Technology s/i in 5 computers and in CC’s accounts receivable. On June 10, 2011, Technology filed f/s in all required public offices.

November 1, 2011: Banks president met with E to discuss CC’s default on loan. Next day, CC delivered 50 shares of Widget Stock to Bank as additional collateral for the loan. Bank agrees to extend p/n’s due date.

November 10, 2011: Furniture sells 5 workstations to CC on credit, E signs note and s/a granting Furniture a s/i in the workstations. Furniture delivered workstations to CC on Nov 28, 2011.

December 10, 2011: CC filed bankruptcy and S appointed Trustee of Estate of CC.

December 15, 2011, Furniture, after learning CC filed bankruptcy, filed f/s in all required public offices.

Among Printers, Bank, Furniture, Technology, and S, who holds superior interests in:

Copier?

Answer 11

• The copier: bank has a superior interest in the copier.

A security interest attaches to tangible collateral when:

1) the debtor agrees to give the creditor a security interest in it, which may be evidenced by an authenticated security agreement or the secured parties possession of the goods;
2) the creditor gives value for the security interest; and
3) the debtor has rights in the collateral. Edward never assigned a security agreement granting printers a security interest and printers is not in possession of the copier.

Thus, printers is an unsecured creditor. Edward signed a security agreement on behalf of bank covering inventory and equipment.

Inventory is any good held for sale or lease, and office furnishings qualify as equipment.

Thus, the copier is equipment if used in copy company’s business and inventory if copy company held it for sale. In either case, it is covered by the security agreement. Bank also gave value in form of $20,000 loan and Edward owned the copier. Accordingly, bank took a security interest in the copier.

A security interest in goods can be perfected by filing a financing statement. Bank perfected its security interest by filing a financing statement “in all required public offices” on May 2 2011.

For purposes of priority, a trustee is treated as a hypothetical judicial Lien creditor who received his Lien on the date of the bankruptcy filing. Thus, Steve is treated as effectively holding a judicial Lien as of December 10, 2011.

The secured creditor who perfects before a Lien creditor gets its Lien has priority over the Lien creditor.

Thus banks May 2 perfection beats steve’s December 10 Lien and bank has priority in the copier.

Question 12

07/12 #6:
March 2011: E had business named CopyCo (CC)

April 1, 2011: Printers sold CC a copier on credit. E agreed to sign and return a s/a granting Printers a s/i in the copier, E failed to do so.

May 1, 2011: CC got $20k loan from Bank for CC’s operation signing a p/n. Note to be paid on/before Oct 31, 2011. As collateral, E signed s/a giving Bank s/i in CC’s currently owned and after-acquired furniture, equipment, inventory, and accounts receivable. On May 2, 2011, Bank filed f/s in all required public offices.

June 1, 2011: Technology sold and delivered 5 computers to CC. E, on behalf of CC, signed p/n and s/a granting Technology s/i in 5 computers and in CC’s accounts receivable. On June 10, 2011, Technology filed f/s in all required public offices.

November 1, 2011: Banks president met with E to discuss CC’s default on loan. Next day, CC delivered 50 shares of Widget Stock to Bank as additional collateral for the loan. Bank agrees to extend p/n’s due date.

November 10, 2011: Furniture sells 5 workstations to CC on credit, E signs note and s/a granting Furniture a s/i in the workstations. Furniture delivered workstations to CC on Nov 28, 2011.

December 10, 2011: CC filed bankruptcy and S appointed Trustee of Estate of CC.

December 15, 2011, Furniture, after learning CC filed bankruptcy, filed f/s in all required public offices.

Among Printers, Bank, Furniture, Technology, and S, who holds superior interests in:

Computers?

Answer 12

• The computers: Technology has the superior interest in the computers. Bank’s security agreement covers after acquired equipment. Thus, bank has a security interest in the computers that also was perfected by filing a financing statement “and all required public office is” on May 2, 2011. Technology sold the computers to copy company on credit.

A PMSI is created when on item is sold on credit and when the seller takes a security interest in the item to secure payment of the price. Edward signed a promissory note and a security agreement on copy companies behalf, which created a PMSI in favor of technology. Technology perfected its security interest by filing a financing statement on June 10, 2011.

Between Bank and technology, the rule is that a PMSI in equipment trumps a conflicting security interest if the PMSI is perfected within 20 days after the debtor receives possession of the collateral. Technology perfected by filing nine days after the computers were delivered.

Technologies Lien is prior to banks Lien even though bank filed back in may. Technology also beats Steve because technologies lien was perfected on June 10 before steve’s December 10 Lien.

Technology has priority.

Question 13

07/12 #6:
March 2011: E had business named CopyCo (CC)

April 1, 2011: Printers sold CC a copier on credit. E agreed to sign and return a s/a granting Printers a s/i in the copier, E failed to do so.

May 1, 2011: CC got $20k loan from Bank for CC’s operation signing a p/n. Note to be paid on/before Oct 31, 2011. As collateral, E signed s/a giving Bank s/i in CC’s currently owned and after-acquired furniture, equipment, inventory, and accounts receivable. On May 2, 2011, Bank filed f/s in all required public offices.

June 1, 2011: Technology sold and delivered 5 computers to CC. E, on behalf of CC, signed p/n and s/a granting Technology s/i in 5 computers and in CC’s accounts receivable. On June 10, 2011, Technology filed f/s in all required public offices.

November 1, 2011: Banks president met with E to discuss CC’s default on loan. Next day, CC delivered 50 shares of Widget Stock to Bank as additional collateral for the loan. Bank agrees to extend p/n’s due date.

November 10, 2011: Furniture sells 5 workstations to CC on credit, E signs note and s/a granting Furniture a s/i in the workstations. Furniture delivered workstations to CC on Nov 28, 2011.

December 10, 2011: CC filed bankruptcy and S appointed Trustee of Estate of CC.

December 15, 2011, Furniture, after learning CC filed bankruptcy, filed f/s in all required public offices.

Among Printers, Bank, Furniture, Technology, and S, who holds superior interests in:

Workstations?

Answer 13

• The workstations: furniture has the superior interest. Bank’s security agreement covers after-acquired furniture and equipment so it has a security interest in the workstations which was perfected by filing a financing statement on May 2, 2011. Furniture sold the workstation on credit to copy company. Edwards signed a promissory note and a security agreement on copy company’s behalf creating a PMSI in favor of furniture.

Filing for bankruptcy imposes an automatic stay which prevents creditors from pursuing remedies against the debtor or his assets. Thus, a stay was imposed on December 10 when bankruptcy was filed.

Despite the stay, if a secured creditor files a financing statement with respect to a PMSI before or within 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a Lien creditor who arose between the time of attachment and the time of filing.

Here furniture filed on December 15 (within 20 days of the debtor receiving delivery of the collateral on November 28). Thus furniture trumps steve’s interest, which arose on December 10 because that interest arose between the time of attachment (November 10) and the time of filing (December 15).

A bankruptcy trustee may avoid preferential transfers. However, a PMSI is not a voidable preference if it secures new value that was given by the secured party at or after the signing of a security agreement if it is perfected within 30 days of the debtor receiving possession of the collateral.

Furniture’s PMSI meets this requirement. Creditor perfected its security interest on December 15 and copy company acquired possession on November 28. Furniture’s Lien is prior to banks Lien and has priority in the workstations.

Question 14

07/12 #6:
March 2011: E had business named CopyCo (CC)

April 1, 2011: Printers sold CC a copier on credit. E agreed to sign and return a s/a granting Printers a s/i in the copier, E failed to do so.

May 1, 2011: CC got $20k loan from Bank for CC’s operation signing a p/n. Note to be paid on/before Oct 31, 2011. As collateral, E signed s/a giving Bank s/i in CC’s currently owned and after-acquired furniture, equipment, inventory, and accounts receivable. On May 2, 2011, Bank filed f/s in all required public offices.

June 1, 2011: Technology sold and delivered 5 computers to CC. E, on behalf of CC, signed p/n and s/a granting Technology s/i in 5 computers and in CC’s accounts receivable. On June 10, 2011, Technology filed f/s in all required public offices.

November 1, 2011: Banks president met with E to discuss CC’s default on loan. Next day, CC delivered 50 shares of Widget Stock to Bank as additional collateral for the loan. Bank agrees to extend p/n’s due date.

November 10, 2011: Furniture sells 5 workstations to CC on credit, E signs note and s/a granting Furniture a s/i in the workstations. Furniture delivered workstations to CC on Nov 28, 2011.

December 10, 2011: CC filed bankruptcy and S appointed Trustee of Estate of CC.

December 15, 2011, Furniture, after learning CC filed bankruptcy, filed f/s in all required public offices.

Among Printers, Bank, Furniture, Technology, and S, who holds superior interests in:

Accounts Receivable?

Answer 14

• The accounts receivable: bank has superior interest in accounts receivable. Banks security agreement covers present and after acquired accounts. Technology has a PMSI in the computers, but a PMSI does not exist in the accounts because accounts are not goods. Technology perfected its security interest by filing a financing statement on June 10, 2011.

Between banks and technology rule is that the first to file or perfect has priority. Bank filed and perfected on May 2 which was before technologies filing and perfection on June 10.

Thus bank has priority an all accounts. Because bank was perfected on May 2 (before steve’s December 10 Lien) banks interest defeats steve’s and bank has priority in accounts.

Question 15

07/12 #6:
March 2011: E had business named CopyCo (CC)

April 1, 2011: Printers sold CC a copier on credit. E agreed to sign and return a s/a granting Printers a s/i in the copier, E failed to do so.

May 1, 2011: CC got $20k loan from Bank for CC’s operation signing a p/n. Note to be paid on/before Oct 31, 2011. As collateral, E signed s/a giving Bank s/i in CC’s currently owned and after-acquired furniture, equipment, inventory, and accounts receivable. On May 2, 2011, Bank filed f/s in all required public offices.

June 1, 2011: Technology sold and delivered 5 computers to CC. E, on behalf of CC, signed p/n and s/a granting Technology s/i in 5 computers and in CC’s accounts receivable. On June 10, 2011, Technology filed f/s in all required public offices.

November 1, 2011: Banks president met with E to discuss CC’s default on loan. Next day, CC delivered 50 shares of Widget Stock to Bank as additional collateral for the loan. Bank agrees to extend p/n’s due date.

November 10, 2011: Furniture sells 5 workstations to CC on credit, E signs note and s/a granting Furniture a s/i in the workstations. Furniture delivered workstations to CC on Nov 28, 2011.

December 10, 2011: CC filed bankruptcy and S appointed Trustee of Estate of CC.

December 15, 2011, Furniture, after learning CC filed bankruptcy, filed f/s in all required public offices.

Among Printers, Bank, Furniture, Technology, and S, who holds superior interests in:

Widget Stock?

Answer 15

• The widget stock: Steve probably has superior interest. Its security interest in stock to be avoided as a preference added a preference is a transfer of a debtor’s interest in property for or on account of an antecedent debt made or suffered by the debtor while insolvent and within 90 days before filing bankruptcy. The trustee has the power to avoid such preferences. If banks security interest in the stock is avoided it loses it’s a Lien in the stock and has no priority in it. Steve would have priority in the stock as a hypothetical judicial Lien creditor. (#40 in BarBri book; pg. 42)

Question 16

02/12 #10:
W owned Home Appliance Store. W borrowed $50k from Bank and signed s/a, giving Bank a s/i in currently owned and after-acquired inventory and equipment. Bank promptly and properly filed f/s with Tx Sec of State to perfect its interest.

W donated to Charity a microwave from inventory to use in soup kitchen. Charity had no knowledge of Bank’s s/i.

After, W began having cashflow problems. W offered Ira new Oven from inventory, at 30% discount. Ira knew that Bank had financed W’s business. Ira gave W cash and took possession of Oven.

W owned Fork Lift used to move appliances around store. W offered to sell it to F for $2500. F gave W $2500 and took possession of Fork Lift. F was unaware of W’s dealings with Bank.

Do any of the following now own the goods they received from W free of Bank’s s/i?

1) Charity?

Answer 16

• Does charity own the microwave oven: charities interest in the microwave is subordinate to banks claim. The issue is who has priority in the microwave between bank, a perfected security creditor in inventory, and charity, a donee. When a debtor makes a gift of collateral to a donee, the collateral remains subject to the security interest in the donee’s hands, even if the done has no knowledge of the security interest.

Question 17

02/12 #10:
W owned Home Appliance Store. W borrowed $50k from Bank and signed s/a, giving Bank a s/i in currently owned and after-acquired inventory and equipment. Bank promptly and properly filed f/s with Tx Sec of State to perfect its interest.

W donated to Charity a microwave from inventory to use in soup kitchen. Charity had no knowledge of Bank’s s/i.

After, W began having cashflow problems. W offered Ira new Oven from inventory, at 30% discount. Ira knew that Bank had financed W’s business. Ira gave W cash and took possession of Oven.

W owned Fork Lift used to move appliances around store. W offered to sell it to F for $2500. F gave W $2500 and took possession of Fork Lift. F was unaware of W’s dealings with Bank.

Do any of the following now own the goods they received from W free of Bank’s s/i?

2) Ira?

Answer 17

• does Ira own the built-in oven: the issue is who has priority in the oven between bank, a perfected secured creditor in inventory, and Ira, a purchaser of the collateral. Ira will have priority if he can qualify as a buyer in the ordinary course of business from one who is in the business of selling appliances. However, Ira must have purchased the oven in good faith, which means to act honestly and observe reasonable commercial standards. Ira purchased the oven at a 30% discount. Whether or not a 30% discount is considered a normal markup on ovens or whether the 30% discount is sufficient to place Ira on notice that something is wrong with of the transaction would need to be investigated. Assuming Ira was acting in good faith, it would not matter that he knew of bank’s security interest. A purchaser does not lose the ability to achieve the BIOC protection merely because the buyer knows that the purchased property is subject to a creditors security interest.

Question 18

02/12 #10:
W owned Home Appliance Store. W borrowed $50k from Bank and signed s/a, giving Bank a s/i in currently owned and after-acquired inventory and equipment. Bank promptly and properly filed f/s with Tx Sec of State to perfect its interest.

W donated to Charity a microwave from inventory to use in soup kitchen. Charity had no knowledge of Bank’s s/i.

After, W began having cashflow problems. W offered Ira new Oven from inventory, at 30% discount. Ira knew that Bank had financed W’s business. Ira gave W cash and took possession of Oven.

W owned Fork Lift used to move appliances around store. W offered to sell it to F for $2500. F gave W $2500 and took possession of Fork Lift. F was unaware of W’s dealings with Bank.

Do any of the following now own the goods they received from W free of Bank’s s/i?

3) Franklin?

Answer 18

• does Franklin on the cart: franklin’s interest in the cart is a subordinate to banks claims. The issue is who has priority in the cart between bank, a perfected secured creditor in equipment, and Franklin, a purchaser of the collateral. Generally, a purchaser of collateral from a debtor remains subject to a prior perfected security interest. There are several exceptions to this rule, but they are not available to protect Franklin. Franklin cannot obtain BIOC protection because W does not sell carts as part of her business. Franklin cannot use the consumer purchaser of consumer goods exception because in Franklin’s hands, it is neither inventory nor consumer goods (it is equipment) in lilies hands. Whether Franklin was aware or unaware of lilies dealing with the bank is irrelevant. Franklin is on constructive notice of the financing statement because bank properly filed it with the secretary of state.

Question 19

07/11 #4:
Facts: Elbert operated a food catering business. In April 2010, Elbert persuaded his sister in law, Ruth, to loan him $1000. Elbert told Ruth she could keep his mobile propane pizza oven until he repaid her. Ruth promptly put the pizza oven in her garage. Elbert needed additional money to replenish his food inventory. On May 5, 2010, Elbert borrowed $5000 from bank. Elbert secured the loan by signing a security agreement giving bank a security interest in the following: “all accounts, equipment, and all other assets owned by Elbert.” Bank properly filed a financing statement with the secretary of state on May 6, 2010. On June 24, 2010, Elbert borrowed $8000 from his brother in law, Walter, and signed a document granting Walter a security interest in the following: “Elberts personal gold coin collection located in Elberts safe deposit box, and in all other assets owned by Elbert.” Who has the superior interest in:
• gold coin collection:

Answer 19

Walter has priority in the collection. The collection belongs to Elbert personally and is classified as consumer goods. Walter obtained in interest on June 24 when Elbert signed the security agreement and Walter lent and the money. Walter did not take any additional steps to perfect and thus is unperfected. Walter nonetheless prevails because neither of the other claimants has an interest in the coin collection. Ruth has an interest in only the pizza oven/equipment. Bank has an interest in accounts and equipment, not consumer goods. The property description in the security agreement must reasonably describe the collateral, and for consumer goods, must be more specific than a general reference to consumer goods. The reference in bank’s security agreement to “all other assets owned by Elbert” is a generic description and does not reasonably describe the coin collection.

Question 20

07/11 #4:
Facts: Elbert operated a food catering business. In April 2010, Elbert persuaded his sister in law, Ruth, to loan him $1000. Elbert told Ruth she could keep his mobile propane pizza oven until he repaid her. Ruth promptly put the pizza oven in her garage. Elbert needed additional money to replenish his food inventory. On May 5, 2010, Elbert borrowed $5000 from bank. Elbert secured the loan by signing a security agreement giving bank a security interest in the following: “all accounts, equipment, and all other assets owned by Elbert.” Bank properly filed a financing statement with the secretary of state on May 6, 2010. On June 24, 2010, Elbert borrowed $8000 from his brother in law, Walter, and signed a document granting Walter a security interest in the following: “Elberts personal gold coin collection located in Elberts safe deposit box, and in all other assets owned by Elbert.” Who has the superior interest in:
• food inventory:

Answer 20

Elbert has priority in the food inventory. The issue is whether Elbert gave a security interest in the food inventory to another claimant. Ruth has an interest only in the pizza oven/equipment. Banks interest is in accounts in equipment, not inventory. Walter’s security agreement of “all other assets owned by Elbert” is inadequate to give him an interest in the inventory. The property description in the security agreement must reasonably describe the collateral. A generic description does not reasonably describe inventory.

Question 21

07/11 #4:
Facts: Elbert operated a food catering business. In April 2010, Elbert persuaded his sister in law, Ruth, to loan him $1000. Elbert told Ruth she could keep his mobile propane pizza oven until he repaid her. Ruth promptly put the pizza oven in her garage. Elbert needed additional money to replenish his food inventory. On May 5, 2010, Elbert borrowed $5000 from bank. Elbert secured the loan by signing a security agreement giving bank a security interest in the following: “all accounts, equipment, and all other assets owned by Elbert.” Bank properly filed a financing statement with the secretary of state on May 6, 2010. On June 24, 2010, Elbert borrowed $8000 from his brother in law, Walter, and signed a document granting Walter a security interest in the following: “Elberts personal gold coin collection located in Elberts safe deposit box, and in all other assets owned by Elbert.” Who has the superior interest in:
• pizza oven:

Answer 21

Ruth has priority in the pizza oven. The issue is who has priority in the pizza oven. The pizza oven is Elberts Equipment because uses the oven in his food catering business. Ruth obtained her interest in the pizza oven by loaning Ellbert $1000 and taking possession of the pizza oven. Because Ruth has possession of the oven, a written security agreement is not needed. Possession of the oven acts to perfect her interest in the oven. Bank Also has a security interest in the oven because the security agreement encompasses equipment. Banks interest is perfected because it filed with the secretary of state. Walter does not have an interest in the oven because Walters inclusion of “all other assets owned by Elbert” is inadequate to give him a security interest in the equipment. Both Ruth and Bank have perfected security interests in the oven. Between two perfected creditors, the first creditor who either filed or perfected prevails. Ruth perfected in April 2010 when she took possession of the oven; she never filed. Bank filed and perfected by filing on May 6, 2010. Because Ruth was the first claimant to file or perfect, her interest in the oven has priority.

Question 22

02/11 #9:

WEIRD QUESTION

Answer 22

SKIPPED

Question 23

07/10 # 2:
G sells computers and electronic equipment. Last January, G financed inventory with Bank giving s/i in current and after-acquired property. Bank properly filed f/s with Tx Sec of State.

Feb 1: G ordered 5 computers from Archway, agreeing to pay for them in 60 days. G signed s/a giving Archway a s/i in the 5 computers. Archway filed f/s with Tx Sec of State prior to delivery to G on Feb 7.

G sold one Archway computer to W on Feb 10. W paid for the computer with $2k check.

Feb 25: G hasn’t deposited the check.

Who among Bank, Archway, W and G has the superior interest ans of Feb 25 in the following:

4 Archway computers?

Answer 23

The issue is which creditors have an interest in the computers and which one has priority. Both creditors have a perfected security interest and the collateral.

Between two perfected creditors, the first creditor who either files or perfect prevails. First to file, first to perfect rule applies.

Although one creditor has a PMSI (the items purchased are being used as the collateral for a loan) and it perfected before delivering the collateral.

PMSI priority for inventory requires that PMSI creditor gave notice to other creditors about its transaction prior to delivering the collateral. Because PMSI creditor did not provide this notice, it cannot obtain PMSI super priority.

Question 24

07/10 # 2:
G sells computers and electronic equipment. Last January, G financed inventory with Bank giving s/i in current and after-acquired property. Bank properly filed f/s with Tx Sec of State.

Feb 1: G ordered 5 computers from Archway, agreeing to pay for them in 60 days. G signed s/a giving Archway a s/i in the 5 computers. Archway filed f/s with Tx Sec of State prior to delivery to G on Feb 7.

G sold one Archway computer to W on Feb 10. W paid for the computer with $2k check.

Feb 25: G hasn’t deposited the check.

Who among Bank, Archway, W and G has the superior interest ans of Feb 25 in the following:

Archway computer sold to W?

Answer 24

Whether buyer can qualify as a buyer in the ordinary course of business (BIOC) and thus prevail over creditors who have perfected security interests.

Buyer must prove that

1) he purchased the computer in good faith,
2) he did not know that the sale violated any terms of the creditors security agreements,
3) he purchased nonfarm products from a person in the business of selling goods of the kind,
4) the competing interests were created by the seller, and
5) a competing creditor was not perfected by possession.

Question 25

07/10 # 2:
G sells computers and electronic equipment. Last January, G financed inventory with Bank giving s/i in current and after-acquired property. Bank properly filed f/s with Tx Sec of State.

Feb 1: G ordered 5 computers from Archway, agreeing to pay for them in 60 days. G signed s/a giving Archway a s/i in the 5 computers. Archway filed f/s with Tx Sec of State prior to delivery to G on Feb 7.

G sold one Archway computer to W on Feb 10. W paid for the computer with $2k check.

Feb 25: G hasn’t deposited the check.

Who among Bank, Archway, W and G has the superior interest ans of Feb 25 in the following:

$2000 check?

Answer 25

$2000 check: whether creditor priority continues in the check, which constitutes proceeds of the collateral.

Creditor must demonstrate that perfection and priority continues in the check. Perfection of a security interest in proceeds continues automatically for 20 days after the debtor’s receipt of the proceeds.

Priority in proceeds is the same as in the original collateral, and thus, because creditor has priority in the collateral as discussed above creditor also has priority in the check as the proceeds of the collateral.

Question 26

02/10 #9:
D lived in historic mansion he inherited from parents in 2000. House had a chandelier worth $50k.

March 8, 2008: D purchased TV on credit from BB. TV was attached with brackets to wall in bedroom. D signed s/a giving BB s/i in TV.

November 10, 2008: D borrowed $10k from Friendly Bank giving Friendly Bank s/i in chandelier to secure repayment of the loan. Friendly Bank filed f/s with Tx Sec of State listing name and address as secured party, listing D and address as debtor, and correctly describing chandelier as the collateral.

January 13, 2009: D obtained loan from Domestic Bank and signed deed of trust giving Domestic Bank mortgage in his home. Domestic Bank recorded deed of trust in real property records of Madison County, TX on January 15, 2009.

July 5, 2009: D financed purchase of air conditioning compressor (for home) from Heat n Air company. D signed s/a giving Heat n Air a s/i in the compressor. Next day, Heat n Air installed the compressor by bolting it onto concrete pad next to garage of the home.

July 12, 2009: Heat n Air filed s/a in rel property records of Madison County, TX. The s/a contained: name and address of Heat n Air as secured party; name and address of D as debtor; description and serial number of compressor as collateral; and legal description of house and lot.

Which are the contending parties for a s/i in the chandelier and which party has the superior interest?

Answer 26

Identifying collateral and determining the contending parties for a security interest in collateral, and which party has the superior interest.
A chandelier is a fixture because it is attached to the house with special architectural support originally built into the house, so an interest in a chandelier would arise under real property law. Accordingly, a security interest in the fixture must be perfected with a fixture filing, that is, a financing statement that describes the real property and is filed in the office where the mortgage on the real property would be recorded. Filing of the financing statement and the secretary of state’s office would be incorrect and thus not perfect the security interest. In order to be properly recorded the deed of trust should be recorded in the real property records of the county in which the house is located. A deed of trust automatically attaches to fixtures.

Question 27

02/10 #9:
D lived in historic mansion he inherited from parents in 2000. House had a chandelier worth $50k.

March 8, 2008: D purchased TV on credit from BB. TV was attached with brackets to wall in bedroom. D signed s/a giving BB s/i in TV.

November 10, 2008: D borrowed $10k from Friendly Bank giving Friendly Bank s/i in chandelier to secure repayment of the loan. Friendly Bank filed f/s with Tx Sec of State listing name and address as secured party, listing D and address as debtor, and correctly describing chandelier as the collateral.

January 13, 2009: D obtained loan from Domestic Bank and signed deed of trust giving Domestic Bank mortgage in his home. Domestic Bank recorded deed of trust in real property records of Madison County, TX on January 15, 2009.

July 5, 2009: D financed purchase of air conditioning compressor (for home) from Heat n Air company. D signed s/a giving Heat n Air a s/i in the compressor. Next day, Heat n Air installed the compressor by bolting it onto concrete pad next to garage of the home.

July 12, 2009: Heat n Air filed s/a in rel property records of Madison County, TX. The s/a contained: name and address of Heat n Air as secured party; name and address of D as debtor; description and serial number of compressor as collateral; and legal description of house and lot.

Which are the contending parties for s/i in TV and which party has superior interest?

Answer 27

A television is a consumer good when purchased for personal and household use. The TV does not become a fixture even if attached with brackets to the wall of the house.

Question 28

02/10 #9:
D lived in historic mansion he inherited from parents in 2000. House had a chandelier worth $50k.

March 8, 2008: D purchased TV on credit from BB. TV was attached with brackets to wall in bedroom. D signed s/a giving BB s/i in TV.

November 10, 2008: D borrowed $10k from Friendly Bank giving Friendly Bank s/i in chandelier to secure repayment of the loan. Friendly Bank filed f/s with Tx Sec of State listing name and address as secured party, listing D and address as debtor, and correctly describing chandelier as the collateral.

January 13, 2009: D obtained loan from Domestic Bank and signed deed of trust giving Domestic Bank mortgage in his home. Domestic Bank recorded deed of trust in real property records of Madison County, TX on January 15, 2009.

July 5, 2009: D financed purchase of air conditioning compressor (for home) from Heat n Air company. D signed s/a giving Heat n Air a s/i in the compressor. Next day, Heat n Air installed the compressor by bolting it onto concrete pad next to garage of the home.

July 12, 2009: Heat n Air filed s/a in rel property records of Madison County, TX. The s/a contained: name and address of Heat n Air as secured party; name and address of D as debtor; description and serial number of compressor as collateral; and legal description of house and lot.

Which re the contending parties for s/i in the air compressor and which party has the superior interest?

Answer 28

An air conditioning compressor is a fixture. It is bolted to a concrete pad, and thus an interest in it arises under real property law. A deed of trust covers fixtures. Filing a financing statement in the county where the property on which the fixture was installed is located will qualify as a fixture filing as long as it described the real property. A PMSI creditor can claim priority if the PMSI creditor makes a fixture filing within 20 days after affixation.

Question 29

07/09 #4:
J was president and sole SH of ABC corp, TX Corp.

August 1, 2008, ABC purchased all assets (sewing machines, supplies, knitting inventory) of TT dba “Crooked Needle” (CN). ABC also acquired use of name “CN.” In partial payment for assets and use of name, J signed $30k p/n payable to TT and s/a covering all equipment, supplies, inventory of ABC Co now owned or hereafter acquired.

August 5, 2008: TT filed f/s with Tx Sec of State listing his name and addess as secured party and ABC as debtor describing collateral as “all equipment, supplies, inventory of ABC.”

Sept 1, 2008: ABC changed name to Crooked Needle Knitting Nook (The Nook).

Feb 2, 2009: J borrowed $15k from Fast Bank signing p/n payable to Fast Bank and signed a s/a covering all equipment, supplies, and inventory of The Nook now owned or hereafter acquired.

March 5, 2009: J, on behalf of The Nook, obtained credit card with Video Shack signing front of preprinted Credit Agreement and S/A that contained language on back of form giving Video Shack s/i in collateral described as all merchandise charged to account. Above signature line on front stated: I have read the Credit Agreement and S/A. Also on March 5, 2009, The Nook used credit card to obtain $5k merchandise from Video Shack. Video Shack properly filed f/s with Tx Sec of State. Merchandise is still in The Nook’s possession.

Late March: The Nook purchased Display Cabinets for cash from Henry’s Cabinet Shop.

The Nook hasn’t paid anyone, now overdue.

In which of The Nooks Collateral, if any, does TT have superior s/i?

Answer 29

At issue is the perfection of a security interest where the debtor’s name differs from that indicated on the financing statement.

When resolving priority issues, it is important to know whether the party has perfected its security interest in the collateral.

Perfection cannot occur until attachment. Attachment establishes the secured parties rights to the collateral.

There are three requirements for attachment of a security interest:

1) the parties must have an agreement that the security interest to attach;
2) value must be given by the secured party;
3) the debtor must have rights in the collateral.

Attachment, however, simply establishes the secured parties rights to the collateral with respect to the debtor.

To acquire maximum priority in the collateral over most third parties, the secured party must also perfect.

As to most kinds of collateral, the security interest may be perfected by filing a financing statement with the Texas secretary of state.

The filing statement must include the name and mailing address of the debtor, the name and mailing address of the secured party, and an indication of the collateral covered by the financing statement.

A financing statement sufficiently indicates the collateral if it identifies it by any method in which of the identity of the collateral is objectively determinable.

The financing statement need not mention after acquired property in order to perfect a security interest in such property if the description in the financing statement is broad enough to cover the after acquired property. It is sufficient that the security agreement alone contain a broad enough description of the collateral (or example “all equipment, supplies, inventory”) in order to cover after acquired property.

When a debtor changes its name after a financing statement has been filed and a new name makes the financing statement seriously misleading, a financing statement is effective only evidence collateral acquired by the debtor before the name change and within four months after the change. If the debtor is a registered organization, a financing statement is seriously misleading if the name of the debtor is different from that indicated on the public record of the debtor’s jurisdiction of the organization.

To perfect a security interest in collateral acquired after the four month period, the secured party must refile using the debtor’s new name. Generally a perfected security interest prevails over an unperfected secured interest. If both security interests are unperfected, the first to attach has priority.

Question 30

07/09 #4:
J was president and sole SH of ABC corp, TX Corp.

August 1, 2008, ABC purchased all assets (sewing machines, supplies, knitting inventory) of TT dba “Crooked Needle” (CN). ABC also acquired use of name “CN.” In partial payment for assets and use of name, J signed $30k p/n payable to TT and s/a covering all equipment, supplies, inventory of ABC Co now owned or hereafter acquired.

August 5, 2008: TT filed f/s with Tx Sec of State listing his name and addess as secured party and ABC as debtor describing collateral as “all equipment, supplies, inventory of ABC.”

Sept 1, 2008: ABC changed name to Crooked Needle Knitting Nook (The Nook).

Feb 2, 2009: J borrowed $15k from Fast Bank signing p/n payable to Fast Bank and signed a s/a covering all equipment, supplies, and inventory of The Nook now owned or hereafter acquired.

March 5, 2009: J, on behalf of The Nook, obtained credit card with Video Shack signing front of preprinted Credit Agreement and S/A that contained language on back of form giving Video Shack s/i in collateral described as all merchandise charged to account. Above signature line on front stated: I have read the Credit Agreement and S/A. Also on March 5, 2009, The Nook used credit card to obtain $5k merchandise from Video Shack. Video Shack properly filed f/s with Tx Sec of State. Merchandise is still in The Nook’s possession.

Late March: The Nook purchased Display Cabinets for cash from Henry’s Cabinet Shop.

The Nook hasn’t paid anyone, now overdue.

In which of The Nooks Collateral, if any, does Video Shack have superior s/i?

Answer 30

Who has the superior security interest in merchandise/collateral as between a perfected creditor and an unperfected creditor.

Must meet all requirements for attachment. The description of the collateral in an authenticated security agreement is sufficient if it reasonably identifies the collateral. Collateral may be described by category, type, or any other method in which the identity of the collateral is objectively determinable.

However, the super generic description of collateral, such as “all of the debtor’s assets,” is not sufficient.

A creditor properly perfects its security interest in the collateral when it files a financing statement with the Texas Secretary of state. Generally, a perfected security interest prevails over on unperfected security interest, even if the perfected secured party takes her security interest with knowledge of the earlier unperfected security interest.

When a creditor sells items/collateral to debtor on credit, and the creditor retains a security interest in the same goods/merchandise the creditor has a purchase money security interest “PMSI”. Creditor’s with PMSI’s enjoy a super priority—they are superior to prior perfected security interests in the same goods—if certain conditions are met.

Question 31

07/09 #4:
J was president and sole SH of ABC corp, TX Corp.

August 1, 2008, ABC purchased all assets (sewing machines, supplies, knitting inventory) of TT dba “Crooked Needle” (CN). ABC also acquired use of name “CN.” In partial payment for assets and use of name, J signed $30k p/n payable to TT and s/a covering all equipment, supplies, inventory of ABC Co now owned or hereafter acquired.

August 5, 2008: TT filed f/s with Tx Sec of State listing his name and addess as secured party and ABC as debtor describing collateral as “all equipment, supplies, inventory of ABC.”

Sept 1, 2008: ABC changed name to Crooked Needle Knitting Nook (The Nook).

Feb 2, 2009: J borrowed $15k from Fast Bank signing p/n payable to Fast Bank and signed a s/a covering all equipment, supplies, and inventory of The Nook now owned or hereafter acquired.

March 5, 2009: J, on behalf of The Nook, obtained credit card with Video Shack signing front of preprinted Credit Agreement and S/A that contained language on back of form giving Video Shack s/i in collateral described as all merchandise charged to account. Above signature line on front stated: I have read the Credit Agreement and S/A. Also on March 5, 2009, The Nook used credit card to obtain $5k merchandise from Video Shack. Video Shack properly filed f/s with Tx Sec of State. Merchandise is still in The Nook’s possession.

Late March: The Nook purchased Display Cabinets for cash from Henry’s Cabinet Shop.

The Nook hasn’t paid anyone, now overdue.

In which of The Nooks Collateral, if any, does Fast Bank have superior s/i?

Answer 31

Who has priority between two unperfected secured parties.

When resolving priority issues, it is important to note the types of parties involved. In resolving priority between two unperfected creditors, the first creditor to attach prevails. Attachment requires that the debtor have rights in the collateral.

Question 32

02/09 #12:
C was a cabinetmaker operating business as a sole proprietor.

Feb 1: C borrowed $10k from I for working capital signing p/n to I in 1 year at 6% interest. C also signed s/a giving I s/i collateral described “all of C’s assets.” On same day, I filed f/s with Tx Sec of State listing C as debtor, I as secured party, and “all of C’s assets” as the collateral

March 1: C purchased band saw on credit for $750 from TT. C agreed to give TT s/i in band saw by s/a, and TT emailed it to C the next day.

C received email, said would print and sign and return to TT. TT then filed f/s with TX Sec State on March 2, listing C as debtor, TT as secured party and band saw as collateral. C never printed it out/signed s/a.

June 30: C signed s/a giving R (bro-in-law)_ s/i to secure loan of $900 that C borrowed from R one year earlier. Collateral described as “all of C’s inventory, equipment, and all other assets.” R filed f/s with Tx Sec of State listing C as debtor, R as secured party and “all of C’s assets” as the collateral.

Aug 1: C left ad abandoned business leaving only 3 unfinished cabinets, the band saw and 500 feet of lumber.

Which creditor has superior interest in following:

The band saw?

Answer 32

How to determine which creditor has the superior interest.

Attachment establishes the secured party’s rights to the collateral.

There are three requirements for attachment, which must all coexist:

1) the parties must have an agreement that the security interest attach;
2) value must be given by the secured party;
3) the debtor must have rights in the collateral.

For tangible collateral such as a band saw, the agreement between the parties must be evidenced by an authenticated record describing the collateral or by the creditors possession of the collateral. If the agreement is evidenced by record, the description of the collateral in the record must reasonably identify the collateral.

Description of the collateral may be specific, by category, type, quantity, computational formula, or any other method in which the identity of the collateral is objectively determinable.

However, a super generic description of collateral and, such as “all the debtor’s assets” is not sufficient.

Once the security interest has attached, a creditor often perfects its security interest to establish his priority in the collateral as against others who might have an interest in the same collateral. Most security interests can be perfected by filing a financing statement with the secretary of state describing the debtor and the collateral.

A valid security agreement may be evidenced by an authenticated record. Such a record is authenticated if it is signed or marked electronically with the present intent to identify the authenticating person and adopt the agreement.

A statement of future intent is not the present authentication. A security interest is not enforceable unless it has attached.

Equipment is durable goods used in the business.

A preexisting debt is considered to be value given (even though it does not constitute consideration) if the security interest is intended as security for the preexisting debt.

Attachment establishes the secured parties rights to the collateral with regard to the debtor.

Because other parties may also have rights in the collateral, secured parties often perfect their interest to acquire the maximum priority in the collateral over most such third persons.

Unlike a description of collateral in authenticated security agreements, the financing statement may indicate that it covers “all assets.”

Question 33

02/09 #12:
C was a cabinetmaker operating business as a sole proprietor.

Feb 1: C borrowed $10k from I for working capital signing p/n to I in 1 year at 6% interest. C also signed s/a giving I s/i collateral described “all of C’s assets.” On same day, I filed f/s with Tx Sec of State listing C as debtor, I as secured party, and “all of C’s assets” as the collateral

March 1: C purchased band saw on credit for $750 from TT. C agreed to give TT s/i in band saw by s/a, and TT emailed it to C the next day.

C received email, said would print and sign and return to TT. TT then filed f/s with TX Sec State on March 2, listing C as debtor, TT as secured party and band saw as collateral. C never printed it out/signed s/a.

June 30: C signed s/a giving R (bro-in-law)_ s/i to secure loan of $900 that C borrowed from R one year earlier. Collateral described as “all of C’s inventory, equipment, and all other assets.” R filed f/s with Tx Sec of State listing C as debtor, R as secured party and “all of C’s assets” as the collateral.

Aug 1: C left ad abandoned business leaving only 3 unfinished cabinets, the band saw and 500 feet of lumber.

Which creditor has superior interest in following:

The 3 unfinished cabinets and 500 feet lumber?

Answer 33

How to determine which creditor has the superior interest (who has priority).

Inventories are goods that are held for sale or lease.

This includes works in progress, such as unfinished cabinets, as well as raw material, such as lumber.