Secured Transactions Priority Practice Qs

Deborah bought furniture for her home on credit from Friendly Furniture and granted Friendly a security interest in the furniture. Friendly did not file a financing statement, but its security agreement expressly prohibited Deborah from disposing of the furniture while it was subject to the security interest. Several months later, without Friendly's permission, Deborah sold the furniture at a yard sale to Brenda, who planned to use the furniture in her home. Friendly discovered these facts and insisted that Brenda surrender the furniture. Brenda refused. 1. In a dispute between Friendly and Brenda, does Brenda take free of Friendly's security interest? 2. Would your answer to No. 1 change if Friendly had filed a financing statement? 3. Would your answer to No. 1 change if, at the time of the sale, Deborah said to Brenda, "Friendly Furniture took a security interest in this furniture, but I checked and they never filed it"?

1. Yes, even though Friendly's security interest was perfected. 2. Yes. Friendly would prevail over Brenda. 3. Yes. Friendly would prevail over Brenda.

Creditor has a perfected security interest in ABC's computer. ABC takes the computer to ER Computers for repair. When ABC does not pay ER, ER says it is going to hold on to the computer under a state statute that provides for the following "mechanic's lien": Every person who, while lawfully in possession of an article of personal property, renders any service to the owner or lawful claimant of the article has a special lien on it. The lien is dependent on possession and is for the compensation, if any, that is due to the person from the owner or lawful claimant for the service and for material, if any, furnished in connection with the service. The lien hereby created shall not take precedence over perfected security interests under the Uniform Commercial Code-Secured Transactions. While ER is holding the computer, ABC defaults as to Creditor. Who has priority as between Creditor and ER?

Creditor, because Article 9 provides that liens arising by operation of law have priority unless the lien statute provides otherwise which it does here

Suppose First National bank had filed its financing statement before the debtor signed the SA. Then Second National Bank filed an authorized financing statement. Next, the debtor signed its SA with First National Bank, which authorized FNB to file a financing statement against the debtor's property. Which bank would have priority? FNB

FNB

Molly, a resident of Minneapolis, has hired Quality Contractors to install granite countertops and new cabinets and lighting in the kitchen of her vacation home in Phoenix, Arizona. Quality Contractors is financing the remodeling on a secured basis. The countertops, cabinets, and lights will serve as collateral. Once installed, all of these items will be "fixtures" under local law. Quality Contractors should...

File a fixture filing in the appropriate Arizona county.

On January 1, First Bank took a security interest in the equipment and after-acquired equipment of "James Bond Stirred Martinis Inc." and properly filed. On February 1, the debtor changed its name to "James Bond Shaken Martinis Inc." On March 1, Second Bank conducted a proper search under the name of "James Bond Shaken Martinis Inc." and found no filings. Second Bank took a security interest in the equipment and after-acquired equipment of the debtor and properly filed. On April 1, First Bank properly filed an amendment under the name of "James Bond Shaken Martinis Inc." In August, the debtor declared bankruptcy. Who has priority as between First Bank and Second Bank?

First Bank has priority in all the equipment.

On April 20, Needless Markup Department Store obtained a judgment against Danny Debtor on the overdue, unsecured charge account that he maintained with the store. Debtor was a sole proprietor. On May 1, Debtor borrowed $2,000 from Friendly Finance Company with a computer he used in his business to serve as collateral for the loan. Friendly insisted on taking possession of the computer to secure payment of the loan, and Debtor agreed (he had another computer he could use). On that same day, Debtor delivered the computer to Friendly and Friendly gave Debtor $2,000. On May 3, the levying officer demanded that Friendly Finance turn over Debtor's computer pursuant to a writ of execution that was issued on May 3 to enforce Needless Markup's judgment. In a contest between Needless Markup and Friendly Finance, who has priority over the computer?

Friendly Finance, regardless of notice of Needless Markup's judgment against Debtor.

When Farmer Bean borrowed a large amount of money from Farmers' Friend Financing Company (FFFC), he was required to sign a security agreement by which he promised not to sell the crop that was the collateral for the loan without written consent of FFFC. Nonetheless, every year he sold the crop to the same buyer and remitted the proceeds to FFC without getting its written consent. Does the buyer take free of the security interest of the secured party ?

No, because farm product. If FFFC never protested what was going on year after year as the security agreement was violated, can it be said to have waived its security interest? Yes. See the clovis case. This was not a case of dealing case this was a case of performance case.

Six months after the IRS filed a tax lien against her, Charlene McGee bought a fire extinguisher system for her horse stables. She purchased the system on credit from King Protection Enterprises, which reserved a PMSI in itself and perfected it. Is the IRS's lien superior to King's PMSI?

No, because the IRS said so. IRS is technically like capital gains & can go forward. Nothing in statute that says it but the regulations say they wont enforce this kind of lean and they could change it at anytime if needed.

Thompson, Osborne and Michaels, a Chicago law firm, had two creditors before its permanent move to D.C., both of which had perfected security interests in the firm's accounts receivable—Octopus National Bank, which had filed its financing statement first, and Last National Bank, which had filed second, both creditors filing in Illinois early in the year 2012. When the move occurred on January 1, 2013, Last National promptly refiled in D.C. before the end of March of that year, but Octopus National was careless and didn't realize that the firm had moved until that September. If it files in D.C. in September, will it retain its priority over Last National?

No, because the filing was not within four months of the move.

Computer World, Inc., desires to borrow money from Investment Bank of America, which will grant it a revolving line of credit, secured in part by the bank account that Computer World maintains at Last National Bank. You are the attorney for Investment Bank of America. Advise the bank how it can perfect its SI in this bank account and which of the methods of control specified in 9-104 would be the safest form of security. Changing the account so that IBA is the account holder is safer than getting LNB to agree to follow its instructions. If Computer World later borrows money from Last National Bank & grants the bank a SI in the account carried there, would Last National have priority over your client?

Not if IBA has the account changed so that it's the bank's customer. A secured party that perfected by becoming the bank's customer on the account has priority over a SI held by the bank with which the deposit account is maintained. This is different than for brokerage accounts -

Paul Pop was a rock singer to whom Octopus National Bank (ONB) loaned $8,000 so he could buy stereo equipment for his road show (not consumer goods, must file to perfect). On April 2, Paul purchased the equipment, and on April 10, ONB filed its financing statement in the proper place. However, in the interim, on April 8, Paul sold the equipment to Used Stereo Heaven, which bought with no knowledge of the bank's PMSI. Does ONB or Used Stereo Heaven have the superior claim to the equipment?

ONB—its protected for 20 days, even if the property is sold.

On January 1, O, the owner of a farm, gave a mortgage on the land to M, which M immediately recorded. On June 1, O gave a security interest in all crops growing on the farm to S. As between M and S, who has priority with regard to the crops?

S, because crops are treated as "goods"

On January 2, 2009, a consumer debtor bought a home computer on credit from Sears and granted Sears a security interest in it. On January 5, 2009, the sheriff levied on the computer to satisfy a judgment creditor's judgment against the debtor. On January 25, 2009, Sears filed a financing statement. Who has priority in the computer as between Sears and the judgment creditor?

Sears, because it was perfected at the time the judgment creditor levied.

Farmer Bean had filed a mortgage on his home in favor of Rural State Bank. The mortgage stated that it extended to the realty and all things "growing on, or attached thereto, now in extistene or in the future. When Farmer Bean borrowed money to plan this years crop, he gave a security interest in the crop to Seeds, Inc., the purchase money lender. If the later files its financing statement in the appropriate place, will it prevail over Rural State's mortgage lien?

Seeds Inc. wins regardless of priority & time

To buy a new $10,000 sign for its company headquarters, Business Company borrowed the $5,000 down payment from Lending Company, giving it a PMSI in the sign for this amount, which Lending Company promptly perfected by filing. Business Company paid the $5,000 to Sign Seller, Inc., which then sold the sign to Business Company, agreeing to finance the remaining $5,000 and take a PMSI in the sign it sold. Sign Seller, Inc. perfected its PMSI by filing in the proper place one day after Lending Company filed. Between Lending Company and Sign Seller, who has priority?

Sign Seller prevails

Hans Racing Equipment bought much of its inventory from Standard Auto Wholesalers, Inc., which always took a PMSI in the goods sold to Hans and which filed a financing statement on the same day. Hans also borrowed money from the Matching Dishes National Bank (MDNB) to finance the purchase of inventory from wholesalers, part of which was used to pay off Standard Auto. MDNB filed a financing statement, claiming a SI in Han's inventory. On March 28, Hans contracted to buy $3,000 in goods from Standard, making a down payment of $1,500 and giving Standard a PMSI in the goods for the rest. On that same day, he borrowed the $1,500 down payment from MDNB and also gave a PMSI in the same goods. Both creditors knew of the other, so they both sent written notice to each other. The goods were delivered to Hans on April 2. Which creditor has priority?

Standard

When Farmer Bean bought a doublewide trailer from Traveling Homes, Inc for $100,000, he had it towed to a vacant lot on his farm with police protection en route and large WIDE LOAD signs attached. That was the only trip the doublewide made in its life. It was then placed on a foundation that had been built on the vacant lot, attached to various utilities for electricty and water, and Farmer Bean built a fancy deck that he extended out the front door of the trailer. If you are the lawyer representing the bank that loaned Farmer Bean the money to buy the doublewide, what steps should be taken to perfect its purchase money interest in the collateral?

They should get a perfected fixture security interest.

Jack Gladhand was a traveling salesman dealing in many kinds of office supplies. He needed new luggage to carry his samples and bought a set from Alligator Fashions, which reserved a SI therein and filed a financing statement. A month later, in the middle of a hot sales deal, Jack sold all of his samples and the luggage to Mark Impulse, a compulsive buyer. Jack told Mark (who paid cash for the goods) that the luggage was genuine alligator (a lie—he knew it was lizard). When Mark discovered the truth, he revoked his acceptance of the goods pursuant to 2-608 & claimed a SI in the goods.. On learning of Jack's resale to Mark and of the later revocation of acceptance, Alligator Fashions decided to call the loan & repossess the luggage. Who is entitled to the luggage?

Until the debtor obtains possession of the goods, Mark's SI is enforceable, Filing is not required to perfect the SI, The security interest has priority over a conflicting SI created by the debtor.

R has a non-construction mortgage on D's office building that is properly recorded. S sells D a central air conditioning unit for the office building on credit, takes a security interest in the air conditioning equipment, and immediately makes a fixture filing. Does S's security interest have priority over R's mortgage?

Yes, a timely filed PMSI in fixtures is the exception to the general rule that a mortgage interest has priority over a security interest in fixtures.

Able, a real estate broker from Rhode Island, bought a new lawn tractor from Sears on May 2, 2009 for a price of $2,000 for use at his vacation home in Booneville, Missouri. Able granted Sears a purchase money security interest in the lawn tractor to secure his payment of the lawn tractor. Sears did not file a financing statement. At the end of summer, Able sold the lawn tractor to Cain, the manager of The Links Golf Course for use on the course, for a price of $1,000. Cain had no idea that the sale of the lawn tractor violated Sears' security interest. Does Cain take subject to Sears' security interest?

Yes, because Sears' security interest was perfected and Cain purchased the lawn tractor for use on his golf course.

An automobile dealership in this state has a Quonset hut-type building that it uses to store vehicles. The building is made of corrugated metal pieces bolted to a wooden framework. Is this building a fixture?

It depends on the property law of the state.

Debtor grants Bank a security interest in its current and after-acquired equipment. Bank intends to perfect its security interest by filing a financing statement with the applicable filing office. Bank is concerned that some of the equipment could be deemed a fixture, so Bank also intends to file a fixture filing. What else must the financing statement satisfy in order to be a fixture filing?

It must provide a description of the real estate on which the fixture is or may be located.

Store borrowed money from Bank, giving Bank a security interest in Store's existing and after-acquired inventory. Bank filed a financing statement in the proper place. One year later, on June 15, the IRS filed a tax lien against Store in the proper place. Thereafter, Store received two shipments of new shoes: one on June 20 and one on September 25. Who has priority in these shipments?

June 20 shipment: Bank September 25 shipment: IRS

In exchange for a loan, ABC grants a security interest in all of the copiers it holds in inventory to Bank. ABC leases a copier to L in the ordinary course of ABC's business. ABC then defaults on its loan to Bank. Between Bank and L, who has priority in the copier?

L, because it is a lessee of goods in the ordinary course of business.

First Bank has a perfected security interest in the inventory of Bitterroot Motors. Mary purchases a car for her personal use from Bitterroot Motors on credit, and Bitterroot Motors takes a security interest in the car. What is true about Mary ?

Mary is a BIOC because she is buying from inventory.

Andy Audio bought a stereo receiver on credit from Voice of Japan, Inc., an electronics store, giving it a PMSI in the receiver. Voice of Japan did not file a financing statement. Six months later, when Andy still owed Voice of Japan $300, he held a garage sale and sold the receiver to Nancy Neighbor for $200 cash. If Andy stops making payments to Voice of Japan, can it repossess the receiver from Nancy?

No

First Bank took a security interest in the inventory of Sound City and perfected the security interest by filing. Tony is a lawyer who has been representing Sound City for several years. Sound City owed Tony $16,000 for legal services rendered in two employment discrimination suits. Tony agreed to accept a $14,000 sound system as partial payment, and Sound City installed the sound system in his home. On Sound City's default, is First Bank entitled to repossess the sound system from Tony?

Yes, because Tony is not a buyer in ordinary course.

First Bank takes a security interest in the crops of a farmer and files an Article 9 financing statement in the office of the Secretary of State. A representative from General Mills buys 50,000 bushels of wheat from the farmer. Does General Mills take free of First Bank's security interest?

Yes, because the Food Security Act so provides, and in a conflict between the Food Security Act and the UCC, the Food Security Act governs.

Holland, a resident of Florida, purchased a mechanical harvester. The purchase was financed by Exchange Bank, which took a security interest in the harvester and properly filed. Two weeks later, Holland, without the permission of the bank and in violation of the security agreement, sold the harvester to CB&O Equipment in Iowa, which is in the business of selling farm equipment. One day later, Jarrett purchased the harvester from CB&O and took it to Montana. The bank discovered these facts. Can the bank repossess the harvester from Jarrett?

Yes, because the security interest was not created by Jarrett's seller.

Simon Mustache failed to pay his attorney, Susan Mean, so she sued him, recovered judgment, and levied on his apartment building and its contents. Will Simon's creditors holding securities in the fixtures prevail if they have perfected fixture filings?

Yes.

Carla took her television set to Honest John's Repair Shop to be repaired. A repair price of $100 was quoted, which was a reasonable price. No written contract was executed and there was no oral agreement that the television set could be retained to secure payment of the repair bill. When the television set was repaired, Carla refused to pay. Which of the following statements is most accurate?

Any right that Honest John has to retain the television set arises outside of Article 9.

Consumer financed the purchase of a car through Credit Union, which held a perfected PMSI therein. The car broke down, and Consumer took it to Al's Repair Shop. Consumer failed to pay the repair bill, leaving the car at Al's. By state law, Al's has an "artisan's lien" in the car. Consumer then missed two payments to the Credit Union, which tried to repossess the car. Between Al's and Credit Union, who has priority?

As long as Al's retains possession, Al's statutory lien has priority over Credit Union's security interest, unless the artisan's lien statute provides otherwise.

ONB had a perfected SI in the inventory, accounts receivable, instruments, and chattel paper of an automobile dealership named Smiles Motors, to which the bank made periodic loans. Smiles Motors failed to pay its federal taxes, and the IRS filed a tax lien in the proper place on Oct. 1. On the first days of November & December new shipments of cars arrived at Smiles's lot, and all during the year Smiles continued to sell cars on credit, generating chattel paper and accounts receivable. 1. Does the filing of the tax lien cut off ONB's floating lien in whole or in part? 2. Is this issue in any way affected by the bank's knowledge of the tax lien filing?

1. "Superpriority" protects the bank until mid-November, so the bank will have priority until the November shipment, but the IRS has priority from mid-November on its inventory, accounts receivable, instruments, & chattel paper, including, of course, the December shipment. 2. No, so long as the loan is made without knowledge (loan gets priority only to the extent that such loan is made before the 46th day after the date of tax lien filing or (if earlier) before the lender or purchaser had actual notice or knowledge of the tax lien filing).

ZinnMark Fashions operates several retail clothing stores. On May 1, Bank entered into a binding commitment to make advances to ZinnMark Fashions in an aggregate amount not to exceed $2 million. On that date, ZinnMark Fashions executed a security agreement in which it granted to Bank a security interest in all of its inventory, accounts receivable, and equipment. The security agreement included an after-acquired property clause and a future advance clause. Bank filed a proper financing statement with the appropriate official on May 8. Pursuant to its binding commitment, Bank made the following advances to ZinnMark Fashions (none of which has been repaid): DATE AMOUNT 5/8 $300,000 7/12 $200,000 8/3 $400,000 8/22 $100,000 9/9 $300,000 On July 1, the IRS assessed a $700,000 tax lien against ZinnMark Fashions. The IRS filed a tax lien notice with the appropriate officials on August 1. Bank discovered the tax lien notice on August 21. 1. Assuming that the type and value of collateral are adequate, the IRS lien will be subject to Bank's security interest that secures debt of... 2. In a priority dispute concerning a shipment of dresses and shoes acquired by ZinnMark Fashions on September 7...

1. $900,000. 2. Bank's security interest enjoys priority.

On February 1, Bank loans D $10,000 and takes a security interest in D's equipment. On March 1, the IRS files a tax lien against D's business property in the proper place. On April 1, Bank files a financing statement in the proper place. 1. Who has priority? 2. Would your answer to No. 1 change if Bank filed the financing statement on February 15? 3. Would your answer to No. 1 change if Bank took possession of D's equipment prior to March 1?

1. A tax lien has priority over an unperfected security interest. 2. Yes. A perfected security interest has priority over a subsequent tax lien. 3. Yes. A perfected security interest has priority over a subsequent tax lien.

When the Football University project was completed, the lease described in the last Problem ended, and the machinery was returned by the lessee to Highbid Construction Company. Things were going so well for Highbid that it was able to pay off all of its loans in full & free all of its assets from the security interests that had encumbered them (must assume a termination statement was filed here). Highbid's lawyer advised the company that for both tax and accounting reasons it would be better if Highbid released the new grading machine that it had recently purchased rather than owning it outright. To accomplish this, Highbid's attorney worked out a deal by which Octopus National Bank (ONB) would purchase the grading machine from Highbid and then lease it back to Highbid. The term of the lease was exactly equal to the useful life of the grading machine. Two months after this agreement had come into being, Highbid's president absconded with the company's liquid assets, leaving the company in bad financial shape and needing to borrow some money. ONB refused to advance further funds, so Highbid looked elsewhere. The new president of Highbid went to Antitrust National Bank (ANB) and sought a loan, offering the grading machine as collateral. He was able to produce a bill of sale showing that Highbid had purchased the grading machine a mere 3 months ago when it was involved in the Football University contract. He did not tell ANB about the subsequent sale and leaseback arrangement that Highbid had with ONB. After ANB checked the public records and found no evidence of a security interest in the grading machine, it had Highbid sign the necessary Art. 9 documents & a promissory note, loaned the money, & filed its financing statement in the appropriate place. When Highbid defaulted on its lease payments, ONB repossessed the grading machine, at which point ANB claimed the superior interest therein. ANB's attorney argued that ONB was a party to fraud in that the sale and leaseback helped HIghbid create the false appearance of assets (term of the lease is exactly equal to the useful life of the machine - thus, an Art. 2 sale, with a SI, disguised as a lease - ONB must therefore file a FS to perfect). 1. How does this come out? 2. Would you reach the same result if the lease agreement had been between Highbid & ONB provided the lessee with the right of termination at any time?

1. ANB wins (ONB rly has an unperfected SI) 2. No, ONB wins (true lease)

Seller's "equipment" was subject to a perfected security interest in favor of Bank. Without the permission of Bank, Seller sold a piece of equipment (i.e., a computer) to Buyer on credit. When the computer proved defective, Buyer used UCC § 2-608 to revoke its acceptance of the computer and then used UCC § 2-711(3) to claim a security interest in the computer. 1. Between Buyer and Bank, who has priority in the computer? 2. Would your answer change if Buyer purchased the computer from Seller's inventory and Bank's security interest was in Seller's "inventory"?

1. As long as Buyer retains possession of the computer, Buyer's interest is superior to Bank's perfected security interest 2. In this case, Buyer would be a BIOC and would take free of Bank's security interest.

Grappino Corporation ("GC"), chartered under Delaware law, owns and operates three wineries and related vineyards in the Sonoma Valley, north of San Francisco. Bay Area Bank holds a mortgage on the real estate and "all fixtures now or hereafter affixed thereto." The mortgage (which is not a construction mortgage) was filed in the local property records in January. On July 8, GC purchased four storage tanks on credit from BAMCO, with BAMCO retaining an enforceable security interest in the tanks. BAMCO delivered and installed the tanks (each a "fixture" under applicable law) on August 5. In November, GC defaulted on his obligations to Bay Area Bank and BAMCO. The two creditors are disputing whose property interest in the storage tanks enjoys priority. 1. What true about priority? 2. What is true now if GC is in default & BAMCO wants to enforce its rights and remedies? 3. What is true if BAMCO exercises due care in removing the tanks under applicable law, but still causes damage of $6,000 and the absence of the three tanks has caused GC's property to decrease in value by $36,000?

1. BAMCO will win the priority dispute with Bay Area Bank if BAMCO filed a fixture filing on August 23. 2. BAMCO can remove the tanks, but only if its security interest in the tanks enjoys priority over the claim asserted by Bay Area Bank. 3. BAMCO owes $6,000 to Bay Area Bank, and nothing to GC.

Bank loaned Company $20,000, taking a security interest in all of Company's equipment. The security agreement contains a future advance clause. Bank filed a financing statement in the proper place. One year later, on May 2, the IRS filed a tax lien against Company. On May 10, Bank loaned Company another $20,000; Bank was unaware of the tax lien. 1. Does Bank have priority and, if so, in what amount? 2. Would your answer change if Bank learned of the tax lien on May 5?

1. Bank has priority for the entire $40,000. 2. Yes. Bank's priority is limited to the initial $20,000 loan.

Bank held a perfected security interest in all of Clothing Store's inventory "now owned or after-acquired." Clothing Store, while insolvent, ordered new inventory from Seller, who failed to take a security interest in the merchandise it shipped to Clothing Store. The day the goods arrived, Seller learned of Clothing Store's insolvency and demanded return of the goods. 1. Between Seller and Bank, who has priority in the new inventory? 2. How could Seller have avoided this situation?

1. Bank, because it qualifies as a "good faith purchaser" 2. Perfect a PMSI in inventory before delivery of the merchandise.

Phillip Philately pledged his valuable stamp collection to the Collectors National Bank (CNB) in return for a loan (he gave CNB an oral security interest in the collateral)(its ok for possession but if your going to file you need something in writing); no financing statement was signed. The bank put the stamp collection in its vault. Philately later borrowed money from his father, Filbert Philately, and gave him a signed SA in the same stamp collection. The father filed a financing statement in the proper place. 1. Who has priority btwn CNB & the father? 2. If Phillip goes to the bank & takes the collection home so that he can add new stamps but does then return it, does the answer change? 3. If CNB makes Phillip sign a SA and then turns the collection over to him but never files a financing statement, who wins? 4. What should CNB have done?

1. CNB, since it perfected its interest by possession 2. Yes. 3. Father. 4. CNB should have filed a financing statement before turning over possession of the collateral

Howard "Red" Poll decided to go into the cattle business & borrowed $65,000 from the Brangus National Bank to finance part of the purchase of the initial heard. Poll signed a SA using the cattle as collateral for this "and all other obligations now or hereafter owed to the bank." A financing statement covering this transaction was filed in the appropriate place. Two years later, Poll received a charge from the same bank & used it to finance a trip to Australia to look over cattle ranching there. When he failed to pay the credit card bill, the bank repossessed the cattle (even though his payments on the cattle purchase loan were current). 1. Did the bank's SI in the cattle encompass the credit card obligation? 2. Would it make a difference if he had gone to Australia for surfing?

1. Close question because he used the card to finance a business trip. What he should do is keep things separate. 2. Yes, because that would have been clearly a consumer use. It would be a consumer transaction. This is a business loan - cant pick up consumer expenses from a business loan.

Mr. Goldbury instructed his stockbroker, Bing, Bong & Bell (BB&B) to buy 100 shares of Utopia, Ltd., stock & place it in his account at BB&B. Bing, Bong & Bell bought shares & kept them in the account it held at Clearing Corporation but marked its records to indicate that Mr. Goldbury was really the owner of this number of shares of the stock. In this case, Art. 8 would deem Mr. Goldbury an entitlement holder who has a securities entitlement in a security account with a securities intermediary; see 8-201, which defines all these terms (securities account in 8-501(a)). Mr. Goldbury went to ONB and asked to borrow money using the above 100 shares as collateral. You are counsel for ONB & are in charge of making sure that the bank's SI is perfected, which means getting "control" over the securities entitlement. 1. Which of the possible methods is safest for your client? 2. If another creditor also gets control over the rights to the 100 shares, which has priority? 3. If Mr. Goldbury borrows money from BB&B after ONB has control & grants BB&B a SI in all stocks held in his account with them, is BB&B's SI superior to ONB's?

1. Control beats filing & getting control by having the account changed to bank as owner of the account is better than reaching agreement with both Goldbury & BBB that BBB will follow any entitlement orders (like "sell now!") that the bank gives to BBB. 2. Creditor first getting control 3. BBB has priority.

First Bank loans Debtor $10,000 and takes a security interest in Debtor's machinery. The security agreement contains a "future advance" clause. First Bank files a financing statement in the proper place on January 1. On February 1, Debtor borrows money from Second Bank, which takes a non-PMSI security interest in the same machinery and files a financing statement on that day. On March 1, First Bank makes another loan to Debtor under the original security agreement. 1. Does First Bank have priority and, if so, does its priority extend to the March 1 loan? 2. Would your answer to No. 1 change if First Bank learned of the Second Bank loan on February 25? 3. If First Bank makes another advance of July 1, would its priority extend to this new advance?

1. First Bank has priority for the initial $10,000 loan and the March 1 loan. 2. No. 3. Yes.

Jay Eastriver ran a clothing store and needed money. He went to 2 banks, the First National Bank and the Second State Bank, and asked each to loan him money using his inventory as collateral. They each made him sign a security agreement. First National Bank filed its financing statement first, on Sept. 25, but did not loan Eastriver any money (nor did it make any commitment to do so) until Nov. 10. On Oct. 2, Second State both loaned Eastriver the money and filed its financing statement. Eastriver paid neither bank. 1. Which bank has priority? 2. If Second State Bank had knowledge of the transaction btwn Eastriver & First National at the time it perfected, does that affect its priority?

1. First National Bank. Priority is determined by either perfection OR filing 2. No. we don't really care about knowledge we care about looking at financing statement and look to see order of filing, (who filed first)

Merchants Credit Association held a perfected SI in the inventory of Harold's Clothing Store. Harold went to a fashion showing in NY and contracted to buy $4,000 worth of new clothes for resale; the seller was to be Madame Belinda's Fashions, Inc., which took a PMSI in the clothes on Dec. 10, the date of sale. Madame Belinda herself wrote the Merchants Credit Association on Dec. 11 and informed the credit manager of the sale. He protested but did nothing. Madame Belinda filed on Dec. 11; the goods were delivered to the store on Dec. 12. 1. Who has priority? 2. If the notice was received on Dec. 11, as above, is it sufficient to permit Madame Belinda to keep selling goods to Harold for an indefinite period thereafter only for this one transaction?

1. Madame Belinda, if she followed the rule of the statute. 2. Belinda can keep selling goods to Harold for a 5 year period (because the notice is good for 5 years).

Epstein's Bookstore borrowed $10,000 from ONB(valid SI but still takes second), signing a SA giving the bank a floating lien over the store's inventory. ONB, due to negligence, never got around to filing the financing statement. Martin's Travel Service was an unpaid creditor of the bookstore that sued on the debt & recovered a judgment against the store. It then had the sheriff levy on the inventory. 1. Does ONB or Martin's Travel Service get paid first when the inventory was sold? 2. If, instead of a judgment creditor seizing the goods, Epstein's Bookstore had filed a bankruptcy petition while ONB's lien was still unperfected, what result? 3. What if, instead, Epstein's Bookstore had sold the inventory to a good faith buyer?

1. Martin's Travel Service gets paid first since lien-creditors have priority over unperfected SIs. 2. ONB is still out of luck since it never filed the SI. The trustee's status as a lien creditor cuts off all unperfected interests & turns the lenders involved into general creditors. 3. The buyer would have priority if it gave value & received delivery of the collateral without knowledge of the security interest before it is perfected.

Bank loaned money to Debtor on February 1, secured by Debtor's existing computer. Bank did not file a financing statement. Debtor files a bankruptcy petition on March 7. 1. May Bank now file a financing statement? 2. Would your answer change if the loan was a PMSI and the computer—which was delivered to Debtor on March 1—is consumer goods? 3. Would your answer change if the loan was a PMSI and the computer—which was delivered to Debtor on March 1—is business equipment?

1. No 2. There is no need to file. Perfection is automatic 3. Yes. There is a 30-day grace period to file for a PMSI.

Video Wonder, an electronics store, had granted a floating lien over its inventory & equipment to Last National Bank, which perfected its SI by filing a financing statement in the appropriate place. Needing a guard dog for the store, Video Wonder's manager responded to an ad in the newspaper placed by Agatha Shaw, who was selling her beloved German shepherd, Fang. She had bought him for protection when he was but a pup, but he had proven too much for her, having seriously injured a meter-reader & two mail cars. She checked out the store carefully before agreeing to sell Video Wonder the dog, saying she wanted a good home for Fang. He cost the store $1,200. The manager agreed to send her $100 a month until the dog was paid for, at which time she agreed in writing to sign over Fang's papers. Ms. Shaw & the manager agreed that the store would not get any title to Fang until all payments had been made. Fang proved to be a fine watchdog for the store, but when Video Wonder stopped making payments to all creditors 2 months later, Last National Bank seized all of the store's assets, including Fang. Agatha Shaw is upset. 1. Is there any hope for her? 2. Can she argue that the bank's SI only attached to Video Wonder's equity in the dog, or that until Video Wonder had paid the entire debt, it had no property interest to which the bank's floating lien could attach?

1. No. 2. No. Need to take all of Fang or none of Fang (in FL cant take equity in a dog; can only take the dog itself). Here the dog would not be consumer good and would be equipment. Here there is a purchase money security interest.

Marie Medici owned a hat factory. She financed her business through a series of loans from the Richelieu State Bank pursuant to an agreement by which she gave the bank a SI in all of the factory's equipment, and the bank agreed to loan her money from time to time "as it thinks prudent." A financing statement covering the equipment was filed in the proper place. On August 1, she owed the bank $1,500 (having paid back most of the prior loans). The equipment consisted of two machines: the Habsburg Hat Blocker (worth $7,000) and the Huguenot Felt Press (worth $5,000). On August 15 Louis Dupes paid Medici $5,000 cash for the Huguenot Felt Press, and on August 31 the bank loaned her the $10,000. 1. Does the purchase cut off the bank's security interest? 2. Does it matter whether or not the bank knew of the sale prior to the August 31 loan?

1. No. 2. Yes

Wonder Spa, Inc. pledged 50 of its promissory notes to the Conservative State Bank & Trust Company (CSBTC) in return for a loan. The bank took possession of the notes. The spa asked to have 10 of the notes back for presentment to the makers for payment, and the bank duly turned over the notes, which Wonder Spa sold (discounted) to ONB, a bona fide purchaser without knowledge of CBSTC's interest. This resale was in direct violation of the spa's agreement with CSBTC. 1. Which bank is entitled to the instrument? 2. Is ONB one of the parties protected by §9-331?

1. ONB wins because it's a HIDC which take priority over an earlier SI 2. Yes because ONB is a HIDC.

On October 1, Beth's Shoe Store applied for a loan at State Bank, which on that date filed a properly completed financing statement in the proper place. The financing statement described the collateral as "inventory of shoes, presently existing and after-acquired." On October 5, Beth's Shoe Store borrowed $500 from Loan Shark Finance Company, giving it possession of 20 pairs of expensive basketball shoes from its inventory as collateral for the debt. The transaction between Beth's and Loan Shark was not evidenced by a writing. On October 10, State Bank irrevocably committed to a $15,000 line of credit for Beth's. On October 12, Beth's executed a security agreement, granting State Bank a security interest in the inventory mentioned above. The security agreement covered the shoes delivered to Loan Shark. 1. When was State Bank's security interest perfected? 2. After State Bank's security interest was perfected, which party had priority as to the basketball shoes delivered to Loan Shark?

1. October 12 2. State Bank.

The Repossession Finance Company (RFC) had a perfected SI in Hattie Mobile's car (RFC's lien was noted on the certificate of title as required by state law). The car broke down on the interstate one day, and Hattie had it towed to Mike's Greasepit Garage, where it was repaired. State law gave a possessory artisan's lien to repairpersons. The garage told Hattie it was claiming such a lien, but when she pleaded with the manager, he let her drive the car to work after she assured him that she would return the car to the garage for storage every night (fortunately, she lived across the street). Repossession found out about this practice and, deeming itself insecure (§1-309), accelerated the amount due and repossessed the car from the parking lot in front of Hattie's place of business. 1. Which creditor has the superior interest in the car? 2. If the car had been in Mike's possession when the conflict arose, would it matter that the finance company never gave its consent to the repairs? 3. Once Mike's released the care to Hattie, did its lien reattach whenever she returned it to the garage?

1. RFC. Mike's garage will lose because the lien's effectiveness depends on the person's possession of the goods. Mike does not have possession as the car was in front of Hattie's office. 2. No, a possessory lien on goods has priority over a SI in the goods, effectiveness depending on the person's possession of the goods (here, Mike's possession). 3. Unclear, probably not.

Marie Medici owned a hat factory. She financed her business through a series of loans from the Richelieu State Bank pursuant to an agreement by which she gave the bank a SI in all of the factory's equipment, and the bank agreed to loan her money from time to time "as it thinks prudent." A financing statement covering the equipment was filed in the proper place. On August 1, she owed the bank $1,500 (having paid back most of the prior loans). The equipment consisted of two machines: the Habsburg Hat Blocker (worth $7,000) and the Huguenot Felt Press (worth $5,000). Dupes is another creditor of Medici. On August 15, he levied execution on the felt press pursuant to a judgment. 1. If he did this with full knowledge of the bank's security interest & if with notice of his levy the bank still loans Medici the $10,000 on August 31, does Dupes or the Richelieu State Bank have the superior interest in the felt press as to the future advance? 2. If the bank did not know of the levy by Dupes on August 15 but loaned Medici an additional $5,000 on October 15, who would have priority as to this advance?

1. RSB. 2. RSB because it acted without knowledge of the judicial lien and if you don't have knowledge, you can go beyond the 45 days.

Guy Baldwin was a successful author who decided to self-publish his latest book and mark it directly to retailers. He received an order for 200 copies from Cowskin Book Chain, & he shipped off the books immediately, along with an invoice for their price. Two days later, he learned that Cowskin was hopelessly insolvent & unable to pay any creditors. 1. What can he do? 2. Suppose that 2 weeks before he shipped the books, Cowskin had send him a letter lying about its financial condition; now how long does he have to make his reclamation demand? 3. If he gets the books back, can he sue Cowskin for the wasted shipping costs? 4. If Cowskin's inventory was subject to a perfected SI in favor of a bank, which thereby had a floating lien on the inventory, could he still reclaim the books? Note that the definition of a purchaser includes any voluntary transferee, which would encompass secured parties. 5. What should Baldwin have done?

1. Reclaim the books from an insolvent buyer if he makes demand for their return within a reasonable time after the buyer's receipt. 2. Unlimited 3. No. Successful reclamation of goods excludes all other remedies 4. No. they count as a purchase because it includes SI. 5. Claim a PMSI in the goods and perfect & notify the inventory financer of his interest before shipping the goods - would have won over an earlier floating lien on his inventory. Cow skin has to grant a SI so that you have a perfected floating lean over all the books coming in. By perfecting this, you step ahead. But you have to do another step because this is inventory and you should in case of a default to make sure you maintain your priority. You have to notify inventory financer. Then you would not have to worry about others having a PMSI.

On February 1, John Brown granted a security interest in all of his presently existing and after-acquired equipment to Secured Party National Bank. The security interest attached on that date. On March 1, Secured Party filed a properly completed financing statement in the proper place, properly naming the debtor as John Brown (with the last name (Brown) properly being listed first). The collateral was described in the financing statement as "debtor's presently-owned and after-acquired equipment." On June 1, John Brown legally changed his name to John Clinton. It is now December 1. 1. As to the equipment acquired by Brown (Clinton) before June 1: 2. As to the equipment acquired by Brown (Clinton) during August: 3. As to the equipment acquired by Brown (Clinton) during November:

1. Secured Party has a perfected security interest at this time. 2. Secured Party has a perfected security interest at this time. 3. Secured Party has a security interest, which is unperfected for equipment acquired in November.

Mr. and Mrs. Halyard purchased a large sailboat with money borrowed from the Boilerplate National Bank (BNB), which took a SI therein and promptly filed a financing statement in the proper place (this is a PMSI in consumer goods, don't need to file). The Halyards sold the boat to Oil Slick Boat Sales, Inc., a used boat concern, telling Oil Slick of the bank's interest & of the necessity of making monthly payments to the bank (Halyards are not in the ordinary course of selling sailboats, so SI of BNB will continue in the collateral). Oil Slick turned around and resold the boat to Mr. and Mrs. Blink, innocent people who paid full value for the boat believing Oil Slick had clear title (note: Oil Slick breached warranty of title by not telling them about the SI). When BNB did not receive its usual monthly payment, it investigated, found the boat, and repossessed it. 1. Has the Blinks' property been converted? 2. What does "created by the buyer's seller" mean? 3. Why would the drafters have favored the original creditor in this situation over a buyer in the ordinary course? 4. If the Blinks lose this lawsuit, whom should they sue, and what is their theory? 5. Can Oil Slick use the same theory against the Halyards?

1. Technically 9-320(a) does not destroy BNB's right to repossess because the interest was not created by Oil Slick, the interest was created by the Halyards (although the Blinks would ordinarily be protected by 9-320(a), SI wasn't created by buyer's seller here). 2. Not created by Oil Slick. 3. Favoring the "Secured Creditor" in the ordinary course helps the flow of credit. The "second sale" situation is an infrequent anomaly which would require undue creditor resources to police & perhaps a buyer from a dealer in used goods should be alert for possible SIs lurking therein. 4. Oil Slick for breach of warranty of title. 5. No, Halyards told Oil Slick about the bank's SI. There is in a contract for sale a warranty by the seller that: (1) the title conveyed shall be good, and its transfer rightful; (2) & the goods shall be delivered free from any SI or other lien of which the buyer at the time of contracting has no knowledge.

Marie Medici owned a hat factory. She financed her business through a series of loans from the Richelieu State Bank pursuant to an agreement by which she gave the bank a SI in all of the factory's equipment, and the bank agreed to loan her money from time to time "as it thinks prudent." A financing statement covering the equipment was filed in the proper place. On August 1, she owed the bank $1,500 (having paid back most of the prior loans). The equipment consisted of two machines: the Habsburg Hat Blocker (worth $7,000) and the Huguenot Felt Press (worth $5,000). On that date, the US filed a federal tax lien against all of Medici's property. On August 31, the bank loaned her another $10,000. 1. Assuming the bank did not know of the tax lien on August 31, does the bank or the US have priority in the equipment, and to what amount? 2. What if the bank did know?

1. The bank has priority in the equipment in the amount of $11,500. Since the bank didn't know and its within 45 days, the bank gets back the amount it has loaned. 2. They get back $1,500 only because thats what they leant before the tax lien.

When Paramount Homes finished building "Utopia, Ltd.," its newest fancy apartment complex, it had to furnish the clubhouse, so it sent its construction manager, Bill Gilbert, to Sophy's Interiors, a furniture store, where he made $2,000 worth of credit purchases and signed a SA on behalf of Paramount Homes in favor of the seller. The agreement was signed on June 8; the goods were delivered that same day. Bill failed to mention that all his employer's equipment was designated as collateral on an existing SA and financing statement in favor of Sullivan National Bank. This agreement contained an "after-acquired property" clause, which stated that later similar collateral coming into the buyer's estate would automatically fall under the bank's SI. The policy of Sophy's Interiors was not to file financing statements for its creditor furniture sales. 1.Why might it have such a policy? 2. Is it wise here? 3. On June 10, which creditor will have priority in the furniture? 4. On June 30?

1. The policy reflect's the furniture's usual use, consumer goods, and when to perfect filing is not necessary. 2. No. The purchase of "equipment" furniture happens often enough that Sophy's should at least ask buyers the intended use of the goods. We care about consumer goods because it would be automatically perfected. This is why they normally don't file a financing statement. 3.Sophy's is temporarily protected for 20 days to allow Sophy's to file. 4. SNB.

Betty Consumer bought a television set from Distortion TV, Inc., a retail store. A month later, Distortion went bankrupt, and a minor functionary from Octopus National Bank (ONB) showed up on her stoop & asked her to turn over the set. He explained that ONB held a perfected SI in all of Distortion's inventory & that since Distortion had not paid off its debts to ONB, the bank was repossessing. 1. What should Ms. Consumer tell the bank's flunky? 2. Would it matter if she had known that ONB had a perfected SI in Distortion's inventory? 3. Would it matter if she bought at a "Liquidation Sale" and was informed by the store's owner that the store planned to file a bankruptcy petition the following week? 4. What if Ms. Consumer had put the TV on a "layaway" and had paid 50% of the price but permitted Distortion to keep the TV (she signed a contract obligating herself to pay the balance), and then the store filed for bankruptcy?

1. To go away because she took free (she's a buyer in the ordinary course of business). "this is " a buyer in a ordinary course of business" 2. No, not if she did not actually know the sale was in violation of the SA. 3. No. 4. The Bankruptcy Code also offers such consumers some relief in §507(a)(7), which gives layaway buyers a priority payment up to the amount of $2,425 per individual. She can reclaim her layaway goods & she would have a priority claim in bankruptcy (from the bankruptcy trustee) of up to $2,600.

Simon Mustache decided to erect an apartment building on a vacant lot he owned, so he borrowed $4 million from CSB, to which he mortgaged the real estate and "all appurnatures or things affixed thereto, now present or after-acquired." Simon and CSB signed the mortgage which contained a legal description of the realty and stated that the debt fianced the construction, and the mortgage was filed in the real property recorder's office. During the construction of the apartment building, Simon Mustache bought a furnace on credit from Blast Home Supplies, giving Blast a security interest in the furnace that described the real estate. 1. Is the mortgage effective as a financing statement? 2. Where should Blast file it's financing statement? 3. Is there a technical sentence that needs to be in the financing statement? 4. Even if Blast files a financing statement in the right place before the furnace is installed, will Blast prevail over CSB? 5. If CSB's interest is not perfected, will Blast prevail? 6. What can Blast do to ensure itself of priority? 7. Suppose a security agreement and fixture filing also listed as collateral a liquor license owed by Simon for a bar in the building. Would the fixture filing perfect a security interest in the liquor license?

1. Yes 2. File it in the county real estate records office where the mortgages are fied and describe the real estate that the furnace is attached to 3. Yes it needs to indicate that it will be filed in real property records 4. CSB will win, construction pmortgagee beats PMSI 5. Yes, first to file. 6. Get consent/get a subordiantion agreement 7. LL is a general intangible and never a fixture, file at the state level too

On September 30, Jones sold a printing press (worth $30,000) from his business office to Buyer. He failed to mention that all of his equipment (worth a total of $65,000) was subject to a perfected security interest in favor of Bank, which had loaned Jones $25,000. On October 10, Bank loaned Jones an additional $26,000 in accordance with the future advance clause of their security agreement. At that time, Bank was unaware of the sale to Buyer. 1. Does Bank's security interest continue in the printing press after the sale? 2. Would Bank have a superior interest in the printing press as to the future advance? 3. If Bank made the $26,000 advance on December 10, would Bank have a superior interest in the printing press as to the future advance? 4. If Bank was aware of the sale to Buyer at the time it made the October 10 advance, would Bank have a superior interest in the printing press as to the future advance?

1. Yes, because Buyer is not a BIOC. 2. Yes. 3. No. 4. No.

The Repossession Finance Company had a perfected (filed) SI in the equipment of White Truck Ice Cream (WTIC), Inc. (the company sold ice cream from trucks that traveled through the city's neighborhoods). Though technically a corporation, WTIC was in actuality a family business, and Bill White-Truck himself frequently drove one of the trucks. One day while making his rounds, Bill met Frank Family, a consumer who asked about buying an ice-cream-making machine for his family. Bill promptly sold him one of the machines the company owned, for which Frank paid cash. When WTIC failed to make its payments, the finance company lived up to its name and repossessed all equipment. When Frank refused to turn over the ice cream machine, Repossession sued him for conversion (a tort that does not require a scienter or guilty knowledge for its commission). 1. Does he lose? 2. Would we get a different result if the bank's interest were unperfected at the time of the sale? 3. Would we get a different result if the bank knew & approved of the sale?

1. Yes, this is not a sale in the ordinary course of business so the SI continues after sale & Repossession can go pickup the ice cream machine. 2. Yes. 3. Yes. 9-315: "a SI continues in collateral notwithstanding sale unless the secured party authorized the disposition free of the SI." PMSI in consumer goods is automatically perfected.

Painter, a professional artist, took two of her paintings (each valued at $1,500) down to the art department of Big Department Store and asked the manager if the store was interested in selling the paintings, taking a commission for doing so and remitting the excess to Painter. The store agreed. This was the first time Big Department Store had ever sold goods on consignment. Shortly after receiving the paintings and before they were sold, Big Department Store defaulted on a loan to a creditor who had a security interest in the store's inventory. The secured creditor repossessed all of the inventory, including Painter's paintings. 1. Is Painter's consignment covered by Article 9? 2. Between Painter and the secured creditor, who has priority in the two paintings? 3. What advice would you have for Painter if she attempts such a consignment in the future? 4. Who would prevail if the value of each painting consigned by Painter was $300?

1. Yes. 2. Secured creditor 3. File a financing statement and give written notice to other creditors prior to delivery 4. Under the common law, a consignor may retrieve its goods from the consignee's inventory despite the objections of the consignee's other creditors.

LC secures a judgment against Debtor and has the sheriff seize property of Debtor that is subject to Bank's perfected security interest. 1. Ten days later, Bank loans Debtor more money, not knowing of the judicial lien. Does Bank have priority as to this future advance? 2. Same as No. 1, but Bank was aware of the judgment lien at the time it made the future advance. Does Bank have priority as to this future advance? 3. Sixty days later, Bank loans Debtor more money, not knowing of the judicial lien. Does Bank have priority as to this future advance?

1. Yes. Bank has blanket protection against lien creditors for 45 days. 2. Yes. Bank has blanket protection against lien creditors for 45 days. 3. Yes, because Bank did not have knowledge of the judicial lien.

American Bank, Customer (the debtor), and Creditor agree in a signed writing that American Bank will follow the instructions of Creditor (as well as those of Customer) as to the disposition of the contents of Customer's bank account. 1. If Customer deposits cash proceeds belonging to some other secured party into the account, would Creditor have priority over these cash proceeds? 2. If Customer takes out a loan from American Bank and fails to pay it, is American Bank's right of setoff against the account superior to the rights of Creditor? 3. Could American Bank agree to subordinate its interest to Creditor's interest in the Control Agreement? 4. Would your answer to 2 change if Creditor achieved control by having the account placed only in Creditor's name?

1. Yes. Secured parties with "control" prevail over other secured parties. 2. Yes 3. Yes 4. Yes. American Bank's right to setoff against Customer would be junior to Creditor's rights in the account.

On October 1, 2009, A loaned B $5,000 to start up a business. To secure repayment of the loan, B signs a security agreement purporting to grant A a security interest in "all of B's consumer goods, including after-acquired." Because B was a recent law school graduate at the time, B owned one refrigerator, a washing machine, and a very small black and white television. On October 8, B acquired a dryer to go with his washing machine. On October 12, he acquired a microwave and a very nice 42-inch television set. Unfortunately, B spent too much money on those items and ultimately defaulted on his loan repayments to A. Under the UCC, which answer is correct?

A has a valid security interest in B's washer, refrigerator, black and white television, and dryer.

Which of the following examples of collateral is most likely to merit a fixture filing? A. Coal in the ground. B. A large video screen that drops down from the ceiling of a church. C. A grand piano that cannot be removed from its location without removing one or more doors and related door frames or, alternatively, disassembling the piano. D. Daily revenues earned by a hotel for making its rooms available to travelers.

B. A large video screen that drops down from the ceiling of a church.

Coke Travel Agency used its accounts receivable as collateral for a loan from the Mansfield State Bank, but the bank failed to file the financing statement that Coke Travel Agency had signed because the bank's attorney lost the statement in the maze of papers on her desk. Six months later, Coke Travel Agency needed another loan & applied for one from the Bentham National Bank, which searched the files, discovered there were no financing statements recorded for Coke Travel Agency as debtor, and took a SI in the agency's accounts receivable. Bentham National Bank did file a financing statement in the proper place. Which bank has the superior interest in the collateral?

BNB's perfected SI has priority over MSB's unperfected SI.

On January 1, Creditor 1 sells Consumer a car. Consumer promises to pay Creditor 1 installments of $300 per month for five years. Creditor 1 takes a security interest in the car but does not perfect. On February 1, Creditor 2 loans Consumer $10,000 and takes a security interest in the car. Creditor 2 does not perfect. On March 1, Consumer defaults as to both creditors. Whose claim to the car has priority?

Creditor 1, because its security interest was first to attach. If neither perfected, first to attach

Daniel owns a 1967 Dodge Dart. Charter Bank holds a perfected security interest in the car, which is noted on the certificate of title. Daniel wishes to install high quality speakers in the Dart. Steve's Speakers agrees to sell Daniel the speakers and install the them in the car. Daniel agrees in writing to give Steve's Speakers a purchase money security interest in the speakers. Steve's Speakers files a financing statement in the proper place covering the speakers. Steve's has to cut custom holes in the dash, doors, and rear deck to install the speakers and run wiring through the car. The speakers are are so seamlessly intertwined with the body of the car that their removal would cause substantial damage to the car. As a result, the speakers are considered "accessions" under state law. Daniel likes the look of the 1960s radio in the dash. He doesn't want to remove it and lose the "retro feel." He buys a high-end radio from Rick's Radios, which takes a purchase money security interest in the radio and properly perfects it. Daniel unobtrusively mounts the radio below the dash with two bolts. The speaker and power wires connect with standard plugs. This radio could easily be interchanged with any other model or simply removed and not affect the operation of the car. Thus, the radio is not considered an "accession" under state law. What is true about priority?

Charter Bank has priority over the car and the speakers, but Rick's Radios has priority over the radio. If the item has a certificate of title, the certificate of title holder prevails to all accessions.

ONB held a perfected SI in all the cattle owned by Family Farms of Iowa, Inc. (a mom-and-pop operation). When it became obvious that the farm was failing financially, ONB decided to pull the plug. Before it did so, it wanted to make sure that the cattle were well-fed, so the ONB officer in charge of loan management called Cow Chow, Inc., and encouraged it to make another delivery of cattle feed to Family Farms, even though it had not been paid for its last 2 deliveries. ONB did not mention that it was about to foreclose on the fattened cattle, which it did so as soon as they had consumed most of the new delivery (for which Cow Chow billed Family Farms in the amount of $10,000). Cow Chow was an unsecured creditor, which ONB well knew. Is ONB required to give Cow Chow any of the money it realizes from the foreclosure sale?

Cow Chow will prevail here bc of the basic UCC requirements of good faith which alters the usual priorities.

D is seeking a $40,000 loan from Creditor 1. In the course of the negotiations, with D's consent, Creditor 1 files a financing statement on January 4, 2003, indicating D's accounts as collateral. Creditor 1 and D are unable to agree on terms, so no loan is made. On February 2, 2006, Creditor 2 lends D $50,000 and obtains and perfects a security interest in D's accounts. On March 1, 2006, Creditor 1 lends D $40,000 and obtains a security interest in D's accounts. Which claim has priority?

Creditor 1, because it was first to file or perfect.

Meredith bought her first home in March of this year. Fidelity Finance financed the purchase and holds the mortgage on the home, "all fixtures now or hereafter affixed thereto," and the underlying real estate. The mortgage (which is not a construction mortgage) was filed in the appropriate real property records in March. On October 1, Meredith purchased a chandelier for her home on credit from ZinnCo Lighting, which retained an enforceable security interest in the chandelier as of that date. ZinnCo installed the chandelier (a "fixture" under applicable law) at Meredith's home on October 18. ZinnCo's security interest in the chandelier...

Enjoys priority over the competing claim asserted by Fidelity Finance in December if ZinnCo filed a proper fixture filing on November 5.

When FNB took a perfected SI in the inventory of Jay Eastriver's clothing store, the SA provided that the inventory would secure not only the current loan "but all future advances of whatever kind." Six months later, First National loaned Eastriver an additional $10,000 and had him sign a new promissory note for that amount. Do the existing filed financing statement & SA need to be altered in any way, or are they sufficient as is to protect the bank?

They are OK as is (always include a future advances clause).

Hart Farm Equipment leased a construction backhoe to Farmer Bean for a 6-month period with the understanding that farmer Bean would be given the option to purchase the backhoe at any time during that period, and, in fact, the lease at one point called his a "sale on approval." Farmer Bean's equipment was already subjected to a perfected floating lien in favor of ONB. 3 months after delivery of the backhoe, Farmer Bean agreed to buy the backhoe, and Hart Farm Equipment filed its financing statement the next day, claiming its PMSI. Who wins in the priority battle btwn Hart Farm Equipment & ONB?

Hart Farm Equipment, as long as it filed its financing statement within 20 days following the exercise of the option. They have 2 arguments for the bank that they don't have priority: 1) in order to have a valid SI you need value, written security agreement and debtor has to have rights in the collateral. And here you could say the debtor doesn't have rights in the collateral until acceptance. "goods held on approval are not subject to clais of the buyers creditors until acceptance" 9-323. Could also say that the goods were delivered 3 months ago and therefore past 20 days.

Zeina borrows $10,000 from Alaska Federal Credit Union (AFCU) to purchase a used car. Zeina granted AFCU a security interest in the car and used the $10,000 loan to purchase the car. Later, when Zeina left the U.S. for a 2-year teaching position in Saudi Arabia, she put the car into storage with JKL Wholesale & Storage (JKL). After one year in Saudi Arabia, Zeina stopped paying her storage rental fee and defaulted on the loan with AFCU. Assume that under state law, a common law possessory lien arises in favor of someone who provides storage services for which it is not paid. The common law is silent on the priority of this lien. What is most likely to be true about priority?

If AFCU demands that JKL turn over possession of the car, JKL can properly refuse because JKL's lien has priority over AFCU's SI.

On September 1, F bought a golf cart from Club Car, LLC and financed it by granting a security interest to Club Car. Club Car did not file a financing statement. On October 1, Royce loaned F $500, and F granted Royce a security interest in his golf cart. Royce immediately filed a proper financing statement. Falling on hard times, F declared bankruptcy in December. The bankruptcy trustee claims that F used the golf cart to sell his textbooks around campus and that Club Car does not have a perfected security interest. There are no certificates of titles for golf carts. Under which of the following circumstances would Club Car have the best argument for an automatically perfected security interest and priority over Royce?

If F told Club Car the cart was for personal use and he played golf with it.

Victor was a traveling salesman. He owned a Ford in which Bank held a perfected security interest, which was duly noted on the certificate of title. When the tires were worn out, he bought new ones from Tire Company, which claimed a PMSI in the tires and properly filed a financing statement in the appropriate place. Who has priority in the tires?

If the tires are accessions, Bank has priority.

After the building was complete, Tuesday Tenant moved in. Not liking the refrigerator Simon had installed, she had him remove it and she bought another refrigerator on time from Easy Credit Department Store, which reserved a security interest therein but never filed a financing statement. Assume state real property laws permit Construction State Bank's after acquired property mortgage to reach fixtures installed by lessees (if they don't, easy would always prevail) Will Easy Credit be entitled to priority if it is forced to repossess?

No. A PMSI in a fixture has priority over a mortgage if the holder of the PMSI makes a fixture filing before affixation or within 20 days thereafter. Easy Credit did not do that in this case.

Danica traded in her SUV for a hybrid Maxwell Demon at Cash For Clunkers at a time when she still owed Cash For Clunkers $15,000 on the SUV, which is now worth $10,000. To finance this transaction, Danica borrowed $25,000, secured by the Maxwell Demon, from ONB, which made her a hybrid loan of $20,000 to pay the price of the new Maxwell Demon and $5,000 to pay off her "negative equity" in the old SUV. Does ONB have a PMSI for the full amount?

The issue is whether you have a PMSI when you pay off an old loan/ renegotiate an old loan - Most courts say yes. It still counts as a PMSI but the 5000 protion might be put at end of list because it wasn't used to buy the car and used to pay of old loan. Courts and UCC usually go all or in part of the entire transaction because it is necessary for the car transaction and therefore since you cant by it without paying off the remainder of the loan you have have to pay it of for the transaction fo the car to occur and therefor they take a PMSI in the whole 25k.

A local attorney who collects sport memorabilia as a hobby bought a Ted Williams autographed baseball on credit from the Sports Memorabilia Store. The store took a security interest in the ball but did not file. After the ball sat in his home for a few months, the attorney took it to his law office where he displayed it to clients. Six months later, the attorney was negotiating with a bank for a loan. The bank searched the filings and found no filed financing statements naming the attorney as debtor. The bank then took a security interest in the attorney's office equipment and filed. The attorney then defaulted on his security agreement with the bank. Which creditor has priority in the baseball?

The store, because it was first to file or perfect.

Barbara Shipek was pleased & flattered when Tim Isle, owner of Isle's Fine Art Works, asked her if he could exhibit & sell some of her pottery. She gave him 5 of her favorite pieces. The next day she took a party of friends down to the store to see the display and was astounded to learn that ONB, which had a perfected floating lien on the store's inventory, had foreclosed & seized everything in the store, including Barb's pottery. Can ONB do this to her?

Yes

Assume in the last Problem that after FNB made Eastriver the first loan & filed its financing statement, he then borrowed more money from Second State Bank, using the same inventory as collateral, and this lender also filed a financing statement in the correct place. Eastriver then paid off the loan to First National completely, but the bank never filed a termination statement. A month later, First National loaned Eastriver more money. The parties signed a new SA, but no new financing statement was filed. First National's attorney reasoned that the earlier financing statement would protect the later loan's priority, even though this loan was not contemplated when the first financing statement was filed. Is this right?

Yes (when searching, check for a termination statement). You want to have some record that we can then look to.

The Highbid Construction Company gave a SI to ONB in all of its construction equipment "now owned or after-acquired." ONB filed a financing statement in the proper place. 2 years later, Highbid was in the middle of an enormous construction project at Football University when a number of its key employees quit, leaving it very short-staffed. To avoid breach of contract, it became necessary to farm out the project to someone else, though Highbid had never done this before. The president of Highbid reached an agreement with Newcomber Construction Company, one of its subcontractors on the Football University job, by which Highbid would lease all of its construction equipment to Newcomer for the length of the Football University project so that Newcomer could finish the job for Highbid. Is the lessee subject to ONB's existing SI in the equipment?

Yes. Had Highbid been in the in the leasing business, 9-321(c) would protect Newcomer, but because Highbid had never done this before, it's not a lessee in the ordinary course of business so Newcomb takes the leasehold subject to the SI (& there can be a repo).