Professor S. Harris
Fall, 2008
BANKRUPTCY
Problems on Security Interests
1. Bank loaned $100,000 to Firm. Firm used the $100,000 to purchase a machine. Lean loaned
Firm $50,000, which Firm failed to pay. Lean obtained a judgment against Firm. Acting pursuant
to a writ of execution, Sheriff levied on the machine. Firm has not yet repaid the loan from Bank.
Who has a better claim to the machine, Bank or Lean? See UCC 1-201(b)(35); 9-203.
2. Bank loaned $100,000 to Firm pursuant to a written loan agreement. As part of the agreement,
Firm granted to Bank a security interest in Firm’s existing machinery. Five days later, Sheriff levied
on a machine pursuant to a writ of execution obtained by Lean. Who has a better claim to the
machine, Bank or Lean? What, if anything, could the loser have done to prevail? See UCC 9201(a); 9-317(a)(2); 9-102(a)(52); 9-308(a); 9-203(a), (b); 1-204; 9-310(a).
3. Bank and Firm were negotiating the terms of a loan. With Firm’s written permission, Bank filed
in the proper filing office a financing statement covering “equipment.” Eventually, Bank loaned
$100,000 to Firm pursuant to a written loan agreement in which Firm granted to Bank a security
interest in Firm’s equipment, both existing and after-acquired. Two days later, Lean obtained an
execution lien on the equipment. Who has the better claim to the machine, Bank or Lean? What,
if anything, could the loser have done to prevail?
4. Assume that, in Problem 3, Bank filed the financing statement in the wrong office. What result?
5. On July 1, Firm obtained a $90,000 loan from Bank for the purpose of buying a new drill press
and signed a security agreement granting Bank a security interest in the drill press. Bank issued a
check payable jointly to Firm and the drill press’s manufacturer, M. Firm indorsed the check to M
and paid M the remaining $10,000 of the price. The following day, M delivered the drill press to
Firm. Three days later, on July 5, Lean caused the Sheriff to levy on the drill press pursuant to a writ
of execution. On July 12, Bank filed a proper financing statement covering the drill press. Who has
the better claim to the drill press? What, if anything, could the loser have done to prevail? See UCC
9-317(e); 9-103(b)(1).
6. On July 1, Firm bought a new drill press from the manufacturer, M, and paid M the price of
$100,000. The following day, Firm obtained a $90,000 loan from Bank and executed to Bank a
security agreement covering the new drill press. Three days later, on July 5, Lean caused the Sheriff
to levy on the drill press pursuant to a writ of execution. On July 9, Bank filed a proper financing
statement covering the drill press. Who has the better claim to the drill press? What, if anything,
could the loser have done to prevail?
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Selected Sections of UCC Article 9
UCC § 1-201(b)(35) (first sentence)
“Security interest” means an interest in personal property or fixtures which secures payment
or performance of an obligation.
UCC § 1-204
[A] person gives value for rights if the person acquires them:
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(2) as security for . . . a preexisting claim;
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(4) in return for any consideration sufficient to support a simple contract.
UCC § 9-102(a)(52)
“Lien creditor” means:
(A) a creditor that has acquired a lien on the property involved by attachment, levy,
or the like;
(B) an assignee for benefit of creditors from the time of assignment;
(C) a trustee in bankruptcy from the date of the filing of the petition; or
(D) a receiver in equity from the time of appointment.
UCC § 9-102(a)(73)
“Security agreement” means an agreement that creates or provides for a security interest.:
UCC § 9-103(a), (b)(1)
(a) In this section:
(1) “purchase-money collateral” means goods or software that secures a purchasemoney obligation incurred with respect to that collateral; and
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(2) “purchase-money obligation” means an obligation of an obligor incurred as all or
part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use
of the collateral if the value is in fact so used.
(b) A security interest in goods is a purchase-money security interest:
(1) to the extent that the goods are purchase-money collateral with respect to that
security interest[.]
UCC § 9-201(a)
Except as otherwise provided in [the Uniform Commercial Code], a security agreement is
effective according to its terms between the parties, against purchasers of the collateral, and against
creditors. [“‘Security agreement’ means an agreement that creates or provides for a security interest.”
UCC § 1-201(a)(73).]
UCC § 9-203(a), (b)
(a) A security interest attaches to collateral when it becomes enforceable against the debtor
with respect to the collateral, unless an agreement expressly postpones the time of attachment.
(b) [A] security interest is enforceable against the debtor and third parties with respect to the
collateral only if :
(1) value [as defined in UCC 1-204] has been given;
(2) the debtor has rights in the collateral or the power to transfer rights in the
collateral to a secured party; and
(3) one of the following conditions is met:
(A) the debtor has authenticated a security agreement that provides a
description of the collateral and, if the security interest covers timber to be cut, a description of the
land concerned[.]
UCC § 9-308(a)
Except as otherwise provided in this section and Section 9-309, a security interest is perfected
if it has attached and all of the applicable requirements for perfection in Sections 9-310 through
9-316 have been satisfied. A security interest is perfected when it attaches if the applicable
requirements are satisfied before the security interest attaches.
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UCC § 9-310(a)
Except as otherwise provided in subsection (b) and Section 9-312(b), a financing statement
must be filed to perfect all security interests[.]
UCC § 9-317(a)(2), (e)
(a) A security interest . . . is subordinate to the rights of:
(2) except as otherwise provided in subsection (e), 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 specified in Section 9-203(b)(3) is met and a
financing statement covering the collateral is filed.
(e) Except as otherwise provided in Sections 9-320 and 9-321, if a person files a financing
statement with respect to a purchase-money security interest before or within 20 days after the debtor
receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee,
or lien creditor which arise between the time the security interest attaches and the time of filing.
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