Secured Transactions Flashcards
(5 cards)
Summary
Bank’s filing of a financing statement was ineffective to perfect its interest in Debtor’s delivery trucks because the trucks were covered by a certificate-of-title statute. Finance Company’s inter-est is therefore superior to Bank’s because Finance Company properly perfected its interest by notation on the trucks’ certificates of title.
Global’s security interest in the GPS units continued after the units were attached to the trucks, but that interest will be subordinate to Finance Company’s interest if Finance Company’s security interest in “delivery trucks” is interpreted to include the GPS units installed in the trucks.
Bank’s security interest in the GPS units installed in the remaining 15 trucks is a perfected security interest in “equipment.” However, its interest is subordinate to Global’s perfected purchase-money security interest in the same equipment.
Does a prior security interest in equipment that is perfected by fil-ing prevail over a later security interest that is perfected by notation on a certificate of title when the equipment in question is vehicles subject to a certificate-of-title statute?
Finance Company has a superior claim to the 25 vehicles in which it has a security interest because its interest is perfected and Bank’s is not. Where a motor vehicle certificate-of-title stat-ute calls for perfection by notation on the certificate of title, the filing of a financing statement will not perfect an interest in the vehicles. Debtor’s fleet of delivery trucks is “equipment” for purposes of Article 9. See UCC § 9-102(a) (33). Bank has a security interest in that equipment. However, the facts tell us that the delivery trucks are subject to a certificate-of-title statute that provides for perfection by notation of a secu-rity interest on the certificate of title. Filing a financing statement is “not . . . effective to perfect a security interest in property subject to” such a statute. UCC § 9-311(a)(2). Thus, Bank did not perfect its interest in Debtor’s delivery trucks by filing a financing statement.
Finance Company, on the other hand, did perfect its interest in the 25 trucks by complying with the applicable certificate-of-title statute and noting its interest on the certificates of title. See UCC § 9-311(b). Thus, Finance Company’s perfected security interest in the 25 trucks is superior to Bank’s unperfected interest. See UCC § 9-322(a)(2).
Does a security interest in goods continue after the goods are attached to other goods in which someone else has a security interest?
Once the GPS units were attached to Debtor’s delivery trucks, they became accessions to those motor vehicles. Nonetheless, Global’s interest in the GPS units continues after their attachment to the delivery trucks.
Where, as here, “goods . . . are physically united with other goods in such a manner that the identi-ty of the original goods is not lost,” the goods become accessions. UCC § 9-102(a)(1). A security interest in goods that is created and perfected before the goods become accessions continues after the goods become accessions. UCC § 9-335(a) & (b). Thus, Global’s perfected security interest in the GPS units continued despite the fact that the units were attached to Debtor’s trucks.
When the collateral of one creditor becomes united with the collateral of another, each credi-tor’s collateral is an “accession” to the other creditor’s collateral, and the two items of collateral together are regarded as “the whole.” See UCC § 9-335, cmt. 3. Whether either creditor’s security interest applies to “the whole,” or applies only to its original collateral, “turns on the description of the collateral in [that creditor’s] security agreement.” UCC § 9-335, cmt. .
In this case, Global’s security interest in the GPS units certainly does not cover “the whole” (i.e., delivery trucks with GPS units installed).
On the other hand, Finance Company’s described security interest in the specifically identified delivery trucks expressly includes all installed accessories and therefore covers the GPS units.
Does a properly perfected purchase-money security interest in goods that are accessions to motor vehicles prevail over a prior security interest in the whole vehicle that is perfected by notation on the certificate of title?
Finance Company’s interest in the delivery trucks and installed GPS units is superior to Global’s interest in the GPS units.
The priority rules governing accessions are normally the same as the rules for other collateral. See UCC § 9-335(c). However, as it does in other places, Article 9 makes an exception when, as here, there is an applicable certificate-of-title statute. UCC § 9-335(d) provides that “[a] security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of a certificate-of-title statute . . . .”
Thus, Global’s security interest in the GPS units installed in the trucks claimed by Finance Company is subordinate to Finance Company’s claim, which was perfected by notation on the trucks’ certificates of title. The policy rationale for preferring Finance Company in these circum-stances is to “enable[] a secured party to rely upon a certificate of title without having to check the UCC files to determine whether any components of the collateral may be encumbered.” UCC § 9-335, cmt. 7.
[NOTE: The policy expressed here also supports the conclusion that all components of the trucks, including the GPS units, should be treated as part of the trucks for purposes of applying Finance Company’s security interest to them. See Point Two(a), supra.]
Does a properly perfected purchase-money security interest in goods that are equipment prevail over a prior perfected security interest in the same equipment?
Global’s purchase-money security interest prevails over Bank’s conflicting security interest in the remaining GPS units.
Bank’s perfected security interest covers inventory and equipment, including after-acquired equipment and inventory. The GPS units are “goods” that are properly classified as equipment because they are not inventory, farm products, or consumer goods. UCC § 9-102(a)(33) (equip-ment); see UCC § 9-102(a)(34) (farm products), (44) (goods) & (48) (inventory). The after-acquired collateral clause in Bank’s security agreement is valid, see UCC § 9-204(a), and Bank’s priority dates to the time it filed its financing statement covering equipment, see UCC § 9-322(a) (1), even though its interest in the GPS units did not attach or perfect until Debtor acquired rights in the units. Thus, Bank has a perfected security interest in the GPS units.
Global, however, has a purchase-money security interest in the GPS units. A security interest in goods is a purchase-money security interest if the collateral “secures a purchase-money obligation incurred with respect to that collateral.” UCC § 9-103(a)(1) & (b)(1). Global’s interest in the GPS units secures a purchase-money obligation—the $40,000 debt to Global that Debtor incurred “as all or part of the price of the collateral.” See UCC § 9-103(a)(2). Hence, the security interest is a purchase-money security interest. Global promptly filed a financing statement and its interest was perfected as soon as Debtor obtained possession of the GPS units.
A purchase-money security interest in equipment that is perfected when the debtor takes posses-sion of the collateral prevails over a conflicting perfected interest in the same equipment, even if the conflicting interest is earlier in time. UCC § 9-324(a). Thus, although Bank’s priority dates to June 1, its interest is nonetheless subordinate to Global’s later-in-time purchase-money security interest.
