#32 - Secured Creditors Against Secured Creditors

Question 1

Secured Creditors vs. Secured Creditors General Rule / Non-PMSI Rule

Answer 1

Basic Rule: First in time, first in right

9-322a1: creditor who is the first to perfect OR file is the first in time. “First to file or perfect”.
Note: a creditor who simply files must be given a security interest at some point (via attachment) in order to qualify in the prio ranking

Implicit in rule: All future advances made under a security agreement and accompanying docs that provide for such advances have prio as of the filing of the financing statement. This is also true for after-acquired property.

Question 2

PMSI Rules for Conflicts between Secured Creditors

Answer 2

Basic Rule: first in time, first in right
9-324(a): a PMSI in goods OTHER THAN INVENTORY has prio IF the PMSI is perfected not later than 20 days after the debtor receives possession of the collateral

9-324(b): PMSI in INVENTORY has prio IF the PMSI is perfected by the time the debtor receives possession AND the PMSI creditor gives advance notice to creditors already secured by inventory (to let them know they are being subordinated to the PMSI creditor)

9-324(g): gives seller’s PMSI prio over cash-lender’s PMSI; as between two PMSI lenders, first to file wins

Policy: we allow this reordering to strike the balance between debtors taking advantage of other financing options (5% vs 7%). It also doesn’t really hurt lenders much because the debtor didn’t have those specific suppliers’ inventory items without striking a deal with them. Not increasing the original lender’s exposure without concomitant collateral.

Question 3

PMSI Rules about Proceeds

Answer 3

General Rule: When a PMSI seller or lender’s collateral becomes proceeds, prio extends to proceeds under 9-324(a).

But, a PMSI status in inventory that becomes proceeds only flows into chattel paper, instruments, and cash proceeds. 9-324(b)