Secured Transactions Assignment 28 Lienors vs. Secureds: The Basics

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

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

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

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

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 Judicial Lien Security interest Mortgage Article 9 security interest Statutory Lien

The Priority Rules The system of priority is basically “first in time, first in right.”

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?

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

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

Questions about applicable law 1. Distribution of foreclosure sale proceeds: Sale under an Article 9 security interest: 9-615(a) Sale under an execution lien: State execution statute, NY 5263(g) page 437 Sale under a real estate mortgage: state mortgage foreclosure law. But they all yield the same result. 2. Right to stop the sale. Probably don’t all yield the same result Second execution joins first execution sale Real estate foreclosures race

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 §9-322(a) Priority date and time: The earlier of perfection or filing (perfection is the last of three attachment requirements and the perfection requirement) The earlier of: perfection or filing

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 §9-322(a) Priority date and time: The earlier of perfection or filing (perfection is the last of three attachment requirements and the perfection requirement) The earlier of: perfection or filing

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 §9-317(a) Security interest Priority date and time: “becomes a lien creditor” (majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC) The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

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 §9-317(a) Security interest Priority date and time: “becomes a lien creditor” (majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC) The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

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 §9-317(a) Security interest Priority date and time: “becomes a lien creditor” (majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC) The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

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 §9-317(a) Security interest Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

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 State law Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC

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 §9-317(e) PMSI Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC Attach, provided a financing statement is filed “within 20 days after” delivery

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 §9-317(e) PMSI Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC Attachment, provided a financing statement is filed “within 20 days after” delivery

Purchase money priority File PMSI Lien §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest

Purchase money priority 20 day grace Delivery File PMSI 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

Purchase money priority 20 day grace Delivery File PMSI Lien 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

Purchase money priority 20 day grace Delivery Attachment File PMSI Lien 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.

Problem 28.1.a, page 477 Mortgage granted Mortgage recorded Mortgage Judgment Levy

Problem 28.1.a, page 477 Mortgage granted Mortgage recorded Mortgage Judgment Levy Who has priority?

Problem 28.1.a, page 477 Mortgage granted Mortgage recorded Mortgage Judgment 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.

Problem 28.1.a, page 477 Mortgage granted Mortgage recorded Mortgage Judgment 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. Attachment Filing Security Interest Judgment Levy

Problem 28.1.a, page 477 Mortgage granted Mortgage recorded Mortgage Judgment 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. Attachment Filing Security Interest Judgment Levy Who has priority? Judgment. §9-317(a).

Problem 28.1.a, page 477 Mortgage granted Mortgage recorded Mortgage Judgment 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. Attachment Filing Security Interest Judgment Levy Who has priority? Judgment. §9-317(a).

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Phyllis 3/7

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Phyllis 3/10 3/7 Star Levy

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis 3/10 3/7 Star 3/11 Levy

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis 3/10 3/7 Star 3/11 Now Levy

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis 3/10 3/7 Star 3/11 Now Levy Is Phyllis perfected?

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis 3/10 3/7 Star 3/11 Now Levy Is Phyllis perfected? Depends on whether value has been given

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis lends Phyllis 3/10 3/7 Star 3/11 Levy Is Phyllis perfected? Depends on whether value has been given If Phyllis disburses, does she have priority over Star?

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis lends Phyllis 3/10 3/7 Star 3/11 Levy Is Phyllis perfected? Depends on whether value has been given 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.

Financing statement filed Problem 28.2, page 477 Financing statement filed Security agreement Note Search Search report Phyllis lends Phyllis 3/10 3/7 Star 3/11 Levy Is Phyllis perfected? Depends on whether value has been given 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.

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT Now How could RFT get priority over Sheng?

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT RFT perfects How could RFT get priority over Sheng? How could RFT get a security interest?

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT RFT perfects How could RFT get priority over Sheng? How could RFT get a security interest? Why would Conda Copper grant it?

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT 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?

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT 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?

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT 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).

Problem 28.3, page 478 Judgment entered Levy? Sheng RFT 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: Secured creditor can establish rights faster than unsecured Debtor can “auction” priority among the unsecureds.

Security agreement Financing Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National Execution creditor

Security agreement Financing Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Rule: “becomes a lien creditor at levy.”

Security agreement Financing Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National 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.

Security agreement Financing Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National 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.

Security agreement Financing Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 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.

Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 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.

Problem 28.4, page 478 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 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.

Security agreement Financing Problem 28.4, page 472 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 or Filing 1 Levy 2 or Filing 2 Rule: “becomes a lien creditor at levy or filing” 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.

Security agreement Financing Problem 28.4, page 472 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 or Filing 1 Levy 2 or Filing 2 Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies or files] 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.

Problem 28.4, page 472 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 or Filing 1 Levy 2 or Filing 2 Does this system beat the levies and filings? Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies or files] 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.

Problem 28.4, page 472 Security agreement Financing statement Search report View collateral Close loan National Execution creditor Levy 1 or Filing 1 Levy 2 or Filing 2 Does this system beat the levies and filings? Yes. If Security Agreement signed before filing. Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies or files] 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.

Purchase money priority File PMSI Lien (or buyer) §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest

Purchase money priority 20 day grace Delivery File PMSI Lien (or buyer) §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

Purchase money priority 20 day grace Delivery File PMSI Lien (or buyer) 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

Purchase money priority 20 day grace Delivery Attachment File PMSI Lien (or buyer) 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.

Problem 28.5, page 478 Orville Judgment

Problem 28.5, page 478 Financing statement, not filed Security agreement Delivery Note BBW Orville Judgment

Problem 28.5, page 478 Financing statement, not filed Security agreement Delivery Note BBW Orville Judgment Levy

Problem 28.5, page 478 Financing statement, not filed Security agreement Delivery Note BBW Orville Judgment Levy Can BBW get the boat back from the sheriff right now?

Problem 28.5, page 478 Financing statement, not filed Security agreement Delivery Note BBW Orville Judgment Levy 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

Problem 28.5, page 478 Financing statement, not filed Security agreement Delivery Note BBW Orville Judgment Levy 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.

Problem 28.5, page 478 Financing statement, not filed Security agreement Delivery Note BBW Orville Judgment Levy 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?

Problem 28.5, page 478 Delivery Attachment 20 day grace File BBW Orville Judgment Levy 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

Problem 28.5, page 478 Delivery Attachment 20 day grace File BBW Orville Judgment Levy 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

Problem 28.5, page 478 Financing statement, not filed Security agreement Sale Note Demand possession File BBW Orville Judgment Levy 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

Problem 28.6, page 479 Financing statement, not filed Security agreement, not signed Sale Note BBW Orville Judgment Levy Edith did not sign the security agreement.

Problem 28.6, page 479 Financing statement, not filed Security agreement, not signed Sale Note BBW Now Orville Judgment Levy Edith did not sign the security agreement. Now where do we stand?

Problem 28.6, page 479 Financing statement, not filed Security agreement, not signed Sale Note BBW Now Orville Judgment Levy Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Problem 28.6, page 479 Financing statement, not filed Security agreement, not signed Sale Note BBW Now Orville 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?

Problem 28.6, page 479 20 day grace Delivery Attachment File BBW Orville 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? 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.

Problem 28.6, page 479 20 day grace Delivery Attachment File BBW Orville 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? 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.

How about waiving the paper without saying when signed? Problem 28.6, page 479 20 day grace Delivery Attachment File BBW Orville How about waiving the paper without saying when signed? 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? 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.

How about waiving the paper without saying when signed? Problem 28.6, page 479 20 day grace Delivery Attachment File BBW Orville How about waiving the paper without saying when signed? 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? 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.