Number five.
"On June 15th, Harper purchased equipment for 100,000 from Imperial Corp for use in
its manufacturing process."
Now, what is it to them?
Harper bought this to use in their business.
That's equipment, plus they said they bought equipment.
So, it's equipment.
"Harper paid for the equipment with funds borrowed from Eastern bank.
Harper gave Eastern a security agreement and a financing statement covering Harper's existing
and after acquired inventory."
Now, can you attach to current stuff?
Yes, can you attach to after acquire?
Yes, can you attach to the proceeds?
Yes.
"On June 21st, Harper was petitioned involuntarily in a bankruptcy under Chapter 7 of the federal
bankruptcy code."
We're going to learn about that in the next section.
"A bankruptcy trustee was appointed.
On June 23rd, Eastern filed the financing statement.
Which of the parties will have a superior security interest in the equipment?"
Okay, so what they're saying is, let's see.
All right.
Let's draw this out and see what's happening.
"Harper purchased the equipment from Imperial from money they borrowed from Eastern Bank."
So, here's Eastern bank.
They loaned me money.
They loaned me money, I'm Harper.
I'm buying equipment.
I got that from Imperial...
Imperial Corp.
So, Imperial gave me the equipment.
Eastern gave me the money.
I gave the money to Imperial, so Imperial's out of the picture.
They got paid, they're happy, right?
Now, notice in this situation, I went to the bank, and I bought some money.
I bought some money, I borrowed some money.
I then took the money to buy equipment.
Did they give me the money to buy the collateral?
Yes, did they give me PMSI?
Yes, so they gave me purchase money security...
They're a purchase money secured creditor, because without the bank, I couldn't have
bought the asset.
Now, as I said, I gave Imperial the money, so Imperial's gone, they're happy, they got
their money.
Now, I stop paying them.
When did this happen?
June 15th, I purchased equipment.
On June 21st, we went bankrupt.
So, on 6/15, this happened.
Then, I went bankrupt.
I went bankrupt on 6/21.
So, on 6/21, the trustee in bankruptcy came in and said, I want to take that equipment.
However, Eastern Bank filed a financing statement on 6/23.
Now, do they have a window here of 20 days?
Yes, they do, because remember, if this were consumer goods, they would automatically perfect.
They could take it back from him.
Remember, who are you trying to protect yourself from?
D-O-T-S, other creditors, a trustee in bankruptcy, or a subsequent purchaser.
So, in this case, because it is a PMSI, we still give them the 20 day window.
So, we give them a 20 day window.
It was within 20 days, which means it goes back to the 15th, which is before the 21st,
they get it.
Who gets it?
A, "the trustee in bankruptcy because the filing of the financing statement after the
commencement of the bankruptcy case would be deemed a preferential transfer."
What is a preferential transfer?
We will learn in a minute, it's when I transfer assets to someone, I was insolvent, within
90 days of going bankrupt, it's on old debt, it improves their position, and instead of
90 days, we got to a year.
If they're an insider, we'll learn that in a minute.
"The trustee in bankruptcy, because the trustee became a lien creditor," no.
"Eastern, because it perfected, because it has a purchase money security interest without
having to file."
Was it automatic?
No, only if it were consumer goods, but it was not consumer goods, therefore not automatic.
D, "Eastern, because it perfected its interest within the permissible time limits," yes.
If filed within 20 days, retroactive before the trustee in bankruptcy.
Now what if, instead, we change this word to inventory?
Is there a 20 day window?
No, then I attach on the 15th.
I would have perfected on the 23rd, which is after the 21st, trustee in bankruptcy would
have gotten it.
What if I change the word to consumer goods?
I wouldn't have had to file, because it would have been automatic.
So, important to understand that.
Number six, "Under the secured transactions article of the UCC, for which of the following
types of collateral must a financing statement be filed in order to perfect a purchase money
security interest?"
So, for which of the following do you have to file?
Stock, notes, jewelry, inventory, yes.
You need to file for inventory.
Especially because there is no retroactive adjustment.
Number seven, "Under the revised secured transactions article of the UCC, what would be the order
of priority for the following security interests in consumer goods?"
All right, so who gets it first, second, third?
"Financing statement filed on April 1st, possession of collateral on the 10th, financing statement
perfected on the 15th."
Well, it's in order of, we filed on the 1st.
someone else took possession, isn't that also filing, or perfecting?
Financing statement perfected on the 15th.
Looks like it would be one, two, three, which is answer A. All right, so that's important
to understand as far as the concepts.
That, my friends, is what?
Secured transactions.
Study hard, see you soon.