Secured Transactions
Assignment 28
Lienors vs. Secureds: The Basics
1
The Big Picture
Part Two: The Creditor Third Party Relationship
Chapter 6-7: Perfection
Chapter 8: The Concept of Priority
Chapter 9: Competitions for Collateral
Assignment 28: Lien Creditors vs Secureds: The Basics
Assignment 29: Lien Creditors vs Secured: Future Advances
Assignment 30: Trustees vs Secureds: The Strong Arm
Assignment 31: Trustees vs Secureds: Preferences
Assignment 32: Secureds vs. Secureds: Basics
Assignment 33: Secureds vs. Secureds: Land and Fixtures
2
The Big Picture
Part Two: The Creditor Third Party Relationship
Chapter 6-7: Perfection
Chapter 8: The Concept of Priority
Chapter 9: Competitions for Collateral
Assignment 28: Lien Creditors vs. Secureds: The Basics
Assignment 29: Lien Creditors vs. Secured: Future Advances
Assignment 31: Preferences
Assignment 32: Secured Creditors vs. Secured Creditors
Assignment 36: Buyers vs. Secured Creditors
Land, Fixtures, Agriculture, and Minerals
3
Article 9 Terminology
§9-102(a)(52). “Lien creditor” means . . . a creditor that has
acquired a lien on the property involved by attachment,
levy, or the like . . . .
§9-102(a)(72). “Secured party” means . . . a person in whose
favor a security interest is created . . . under a security
agreement. (Excludes mortgages)
Security interests are contractual; liens are judicial.
The categories are mutually exclusive.
Security
interest
Lien
4
Article 9 Terminology
§9-102(a)(52). “Lien creditor” means . . . a creditor that has
acquired a lien on the property involved by attachment,
levy, or the like . . . .
§9-102(a)(72). “Secured party” means . . . a person in whose
favor a security interest is created . . . under a security
agreement. (Excludes mortgages)
Security interests are contractual; liens are judicial.
The categories are mutually exclusive.
Mortgage
Security
interest
Lien
Statutory
lien
5
Bankruptcy and Tax Code Terminology
§101(51): Security interest means a lien created by agreement.
(Includes mortgages)
§101 (36): Judicial lien means lien obtained by judgment, levy,
sequestration, or other legal or equitable process . . .
§101(53): Statutory lien means a lien arising by statute, but does
not include security interest or judicial lien
§101(37) Lien means charge against property to secure payment
Lien
Lien
Security interest
Mortgage
Article 9
security interest
Judicial
Lien
Statutory
Lien
6
The Priority Rules
The system of priority is basically “first in time, first in right.”
7
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
8
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Answer up until now: perfect
9
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Answer up until now: perfect
Answer now: the act specified by the rule governing
that priority contest
10
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Security interest
Priority date
and time:
The earlier of
perfection or
filing
(perfection is the
last of three
attachment
requirements
and the
perfection
requirement)
§9-322(a)
Security interest
The earlier of:
perfection or
filing
(perfection is the
last of three
attachment
requirements
and the
perfection
requirement) 12
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Security interest
Priority date
and time:
The earlier of
perfection or
filing
(perfection is the
last of three
attachment
requirements
and the
perfection
requirement)
§9-322(a)
Security interest
The earlier of:
perfection or
filing
(perfection is the
last of three
attachment
requirements
and the
perfection
requirement) 13
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
“becomes a lien
creditor”
(majority rule:
levy; minority
rules: deliver writ
to sheriff or file
judgment in
UCC)
§9-317(a)
Security interest
The earlier of (A)
perfection or (B)
filing and “one of
the §9-203(b)(3)
conditions is
met”
14
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
“becomes a lien
creditor”
(majority rule:
levy; minority
rules: deliver writ
to sheriff or file
judgment in
UCC)
§9-317(a)
Security interest
The earlier of (A)
perfection or (B)
filing and “one of
the §9-203(b)(3)
conditions is
met”
15
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
“becomes a lien
creditor”
(majority rule:
levy; minority
rules: deliver writ
to sheriff or file
judgment in
UCC)
§9-317(a)
Security interest
The earlier of (A)
perfection or (B)
filing and “one of
the §9-203(b)(3)
conditions is
met”
16
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
Majority rule:
levy; minority
rules: deliver writ
to sheriff or file
judgment in UCC
§9-317(a)
Security interest
The earlier of (A)
perfection or (B)
filing and “one of
the §9-203(b)(3)
conditions is
met”
17
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
Majority rule:
levy; minority
rules: deliver
writ to sheriff or
file judgment in
UCC
State law
Lien creditor
Majority rule:
levy; minority
rules: deliver
writ to sheriff or
file judgment in
UCC
18
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
Majority rule:
levy; minority
rules: deliver writ
to sheriff or file
judgment in UCC
§9-317(e)
PMSI
Attach, provided
a financing
statement is filed
“within 20 days
after” delivery
19
The Priority Rules
The system of priority is basically “first in time, first in right.”
Question: Precisely what must a creditor do first to be first?
Competitors:
Lien creditor
Priority date
and time:
Majority rule:
levy; minority
rules: deliver writ
to sheriff or file
judgment in UCC
§9-317(e)
PMSI
Attachment,
provided a
financing
statement is filed
“within 20 days
after” delivery
20
Purchase money priority
PMSI
File
Lien
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest
21
Purchase money priority
20 day grace
PMSI
Delivery
File
Lien
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral
22
Purchase money priority
20 day grace
PMSI
Lien
Delivery
File
Levy
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral, the
security interest takes priority over the rights of a . . . lien
creditor
23
Purchase money priority
PMSI
Lien
Delivery
20 day grace
Attachment
File
Levy
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral, the
security interest takes priority over the rights of a . . . lien
creditor which arise between [attachment and] filing.
24
Problem 28.1.a, page 477
Mortgage
Judgment
Mortgage
granted
Mortgage
recorded
Levy
25
Problem 28.1.a, page 477
Mortgage
Judgment
Mortgage
granted
Mortgage
recorded
Levy
Who has priority?
26
Problem 28.1.a, page 477
Mortgage
Judgment
Mortgage
granted
Mortgage
recorded
Levy
Who has priority? Mortgage in a majority of states. First
created, subject to the recording statute. Judgments are not
protected under most recording acts.
27
Problem 28.1.a, page 477
Mortgage
Judgment
Mortgage
granted
Mortgage
recorded
Levy
Who has priority? Mortgage in a majority of states. First
created, subject to the recording statute. Judgments are not
protected under most recording acts.
Security Interest
Judgment
Attachment
Filing
Levy
28
Problem 28.1.a, page 477
Mortgage
Judgment
Mortgage
granted
Mortgage
recorded
Levy
Who has priority? Mortgage in a majority of states. First
created, subject to the recording statute. Judgments are not
protected under most recording acts.
Security Interest
Judgment
Attachment
Filing
Levy
Who has priority? Judgment. §9-317(a).
29
Problem 28.1.a, page 477
Mortgage
Judgment
Mortgage
granted
Mortgage
recorded
Levy
Who has priority? Mortgage in a majority of states. First
created, subject to the recording statute. Judgments are not
protected under most recording acts.
Security Interest
Judgment
Attachment
Filing
Levy
Who has priority? Judgment. §9-317(a).
30
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/7
31
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
32
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
3/11
33
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
3/11 Now
34
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
3/11 Now
a. Is Phyllis perfected?
35
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
3/11 Now
a. Is Phyllis perfected? Depends on whether value has been
given
36
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
Phyllis
lends
3/11
a. Is Phyllis perfected? Depends on whether value has been
given
b. If Phyllis disburses, does she have priority over Star?
37
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
Phyllis
lends
3/11
a. Is Phyllis perfected? Depends on whether value has been
given
b. If Phyllis disburses, does she have priority over Star?
§9-317(a)(2). A security interest . . . is subordinate to . . . a
person that becomes a lien creditor before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
38
Problem 28.2, page 477
Financing statement filed
Security agreement
Phyllis
Note Search
3/10
3/7
Star
Levy
Search
report
Phyllis
lends
3/11
a. Is Phyllis perfected? Depends on whether value has been
given
b. If Phyllis disburses, does she have priority over Star? Yes.
§9-317(a)(2). A security interest . . . is subordinate to . . . a
person that becomes a lien creditor before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
39
Problem 28.3, page 478
Sheng
Judgment
entered
Levy?
RFT
40
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
Now
How could RFT get priority over Sheng?
41
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
RFT perfects
How could RFT get priority over Sheng?
How could RFT get a security interest?
42
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
RFT perfects
How could RFT get priority over Sheng?
How could RFT get a security interest?
Why would Conda Copper grant it?
43
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
RFT perfects
How could RFT get priority over Sheng?
How could RFT get a security interest?
Why would Conda Copper grant it?
Spite? Gratitude? Money? Grocer’s Supply protection?
44
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
RFT files
How could RFT get priority over Sheng?
How could RFT get a security interest?
Why would Conda Copper grant it?
Spite? Gratitude? Money? Grocer’s Supply protection?
What if Conda Copper authorized a financing statement but not
a security agreement?
45
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
RFT files
How could RFT get priority over Sheng?
How could RFT get a security interest?
Why would Conda Copper grant it?
Spite? Gratitude? Money? Grocer’s Supply protection?
What if Conda Copper authorized a financing statement but not
a security agreement?
Not enough. §9-317(a)(2).
46
Problem 28.3, page 478
Sheng
RFT
Judgment
entered
Levy?
RFT perfects
How could RFT get priority over Sheng?
How could RFT get a security interest?
Why would Conda Copper grant it?
Spite? Gratitude? Money? Grocer’s Supply protection?
Points:
1. Secured creditor can establish rights faster than unsecured
2. Debtor can “auction” priority among the unsecureds.
47
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Close
loan
Execution
creditor
48
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Close
loan
Execution
creditor
Rule: “becomes a lien creditor at levy.”
49
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Close
loan
Execution
creditor
Rule: “becomes a lien creditor at levy.”
9-317(a)(2). A security interest . . . is subordinate to . . . a person
that becomes a lien creditor before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
50
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Close
loan
Execution
creditor
Rule: “becomes a lien creditor at levy.”
9-317(a)(2). A security interest . . . is subordinate to . . . a person
that [levies] before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
51
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Execution
creditor Levy 1
Close
loan
Levy 2
Rule: “becomes a lien creditor at levy.”
9-317(a)(2). A security interest . . . is subordinate to . . . a person
that [levies] before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
52
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Execution
creditor Levy 1
Close
loan
Levy 2
Does this system beat the levies?
Rule: “becomes a lien creditor at levy.”
9-317(a)(2). A security interest . . . is subordinate to . . . a person
that [levies] before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
53
Problem 28.4, page 478
National
Security agreement
Search report
Financing
View collateral
statement
Execution
creditor Levy 1
Close
loan
Levy 2
Does this system beat the levies?
Only if SA is signed before
viewing the collateral
Rule: “becomes a lien creditor at levy.”
9-317(a)(2). A security interest . . . is subordinate to . . . a person
that [levies] before the earlier of the time
(A) the security interest . . . is perfected; or
(B) one of the conditions in §9-203(b)(3) is met and a
financing statement . . . is filed.
54
Problem 28.5, page 478
Orville
Judgment
63
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
Delivery Note
Judgment
64
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
Delivery Note
Judgment
Levy
65
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
Delivery Note
Judgment
Levy
a. Can BBW get the boat back from the sheriff right now?
66
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
Delivery Note
Judgment
Levy
a. Can BBW get the boat back from the sheriff right now?
Yes, if boat is consumer goods. BBW is prior perfected
secured creditor, entitled to possession under Grocers Supply
67
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
Delivery Note
Judgment
Levy
a. Can BBW get the boat back from the sheriff right now?
Yes, if boat is consumer goods. BBW is prior perfected
secured creditor, entitled to possession under Grocers Supply
No, if boat is not consumer goods. BBW is unperfected.
68
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
Delivery Note
Judgment
Levy
a. Can BBW get the boat back from the sheriff right now?
Yes, if boat is consumer goods. BBW is prior perfected
secured creditor, entitled to possession under Grocers Supply
No, if boat is not consumer goods. BBW is unperfected.
b. Is there anything BBW should do if it is unperfected?
69
Problem 28.5, page 478
BBW
Orville
Delivery
Attachment
Judgment
20 day grace
File
Levy
a. Can BBW get the boat back from the sheriff right now?
Yes, if boat is consumer goods. BBW is prior perfected
secured creditor, entitled to possession under Grocers Supply
No, if boat is not consumer goods. BBW is unperfected.
b. Is there anything BBW should do if it is unperfected?
File the financing statement to obtain §9-317(e) priority
70
Problem 28.5, page 478
BBW
Orville
Delivery
Attachment
Judgment
20 day grace
File
Levy
a. Can BBW get the boat back from the sheriff right now?
Yes, if boat is consumer goods. BBW is prior perfected
secured creditor, entitled to possession under Grocers Supply
No, if boat is not consumer goods. BBW is unperfected.
b. Is there anything BBW should do if it is unperfected?
File the financing statement to obtain §9-317(e) priority
71
Problem 28.5, page 478
BBW
Orville
Financing statement, not filed
Security agreement
File
Sale Note
Judgment
Demand
possession
Levy
a. Can BBW get the boat back from the sheriff right now?
Yes, if boat is consumer goods. BBW is prior perfected
secured creditor, entitled to possession under Grocers Supply
No, if boat is not consumer goods. BBW is unperfected.
b. Is there anything BBW should do if it is unperfected?
File the financing statement to obtain §9-317(e) priority
Demand possession from sheriff
72
Problem 28.6, page 479
BBW
Orville
Financing statement, not filed
Security agreement, not signed
Sale Note
Judgment
Levy
Edith did not sign the security agreement.
73
Problem 28.6, page 479
BBW
Orville
Financing statement, not filed
Security agreement, not signed
Sale Note
Now
Judgment
Levy
Edith did not sign the security agreement. Now where do we
stand?
74
Problem 28.6, page 479
BBW
Orville
Financing statement, not filed
Security agreement, not signed
Sale Note
Now
Judgment
Levy
Edith did not sign the security agreement. Now where do we
stand? No attachment, so unsecured.
75
Problem 28.6, page 479
BBW
Orville
Financing statement, not filed
Security agreement, not signed
Sale Note
Now
Judgment
Levy
Edith did not sign the security agreement. Now where do we
stand? No attachment, so unsecured.
Should we get Edith’s signature now?
76
Problem 28.6, page 479
Delivery
BBW
Orville
Judgment
20 day grace
Attachment File
Levy
Edith did not sign the security agreement. Now where do we
stand? No attachment, so unsecured.
Should we get Edith’s signature now? Yes, but too late for
purchase money priority.
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral, the
security interest takes priority over the rights of a . . . lien
creditor which arise between [attachment and] filing.
77
Problem 28.6, page 479
Delivery
BBW
Orville
Judgment
20 day grace
Attachment File
Levy
Edith did not sign the security agreement. Now where do we
stand? No attachment, so unsecured.
Should we get Edith’s signature now? Yes, but too late for
purchase money priority.
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral, the
security interest takes priority over the rights of a . . . lien
creditor which arise between [attachment and] filing.
78
Problem 28.6, page 479
Delivery
BBW
Orville
Judgment
20 day grace
Attachment File
Levy
How about waiving the paper
without saying when signed?
Edith did not sign the security agreement. Now where do we
stand? No attachment, so unsecured.
Should we get Edith’s signature now? Yes, but too late for
purchase money priority.
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral, the
security interest takes priority over the rights of a . . . lien
creditor which arise between [attachment and] filing.
79
Problem 28.6, page 479
Delivery
BBW
Orville
Judgment
20 day grace
Attachment File
Levy
How about waiving the paper
without saying when signed?
Edith did not sign the security agreement. Now where do we
stand? No attachment, so unsecured.
Should we get Edith’s signature now? Yes, but too late for
purchase money priority. Would a well-advised Edith sign?
§9-317(e). [I]f a person files a financing statement with
respect to a purchase money security interest before or
within 20 days after . . . delivery of the collateral, the
security interest takes priority over the rights of a . . . lien
creditor which arise between [attachment and] filing.
80