226 MODULE 26 SECURED TRANSACTIONS

EXAMPLE: Same as above except that S files after the 20-day grace period or not at all. The bank has

priority. '
(2) If inventory, no 20-day grace period is allowed for perfection to have priority
(a) Party with purchase money security interest must give notice to other secured party
(b) Party with purchase money security interest must perfect prior to debtor's taking posses-
sion

(3) Knowledge of preexisting security interest has no effect

d. Holder in due course of negotiable instruments wins over perfected or unperfected security interest
d. Security interest, perfected or unperfected, wins over subsequent perfected security interest if lat-
ter party knew of previous security interest
e. Possessor of negotiable document of title has priority over others
f. Lien creditor (e.g., repairman or contractor)
 (1) Has tee in bankruptcy as a lien creditor
priority (1) Trustee has the rights of a lien creditor from the date of filing of petition in bankruptcy
over an (a) So has priority over a security interest perfected after date of filing petition unless it is a
unperfe purchase money security interest perfected within the 20-day gr~ce period
security
(2) Trustee also takes the position of any existing lien creditor
interest
F. Rights of Parties upon Default
(a)
1. If collateral consists of claims (e.g., receivables), the secured party has the right of collection from
Knowledg
third parties
of security
interest is a. Secured party may notify third party to pay secured party directly
immaterial b .. Secured party must account for any surplus and debtor is liable for any deficiency
c. Secured party may deduct his/her reasonable expenses
(2) Has
priority 2. Secured party may retain collateral already in his/her possession or may take possession or control
over a from debtor
security
interest a. May do so himlherself if s/he can without breach of the peace
perfected a. Otherwise, s/he must use judicial process to foreclose on collateral
after b. Secured party has duty to take reasonable care of collateral in his/her possession
attachment
(1) Expenses to protect collateral are responsibility of debtor
of the lien
unless it is a 3. If secured party proposes to satisfy obligation by retaining the collateral, s/he must
pur- a. Send written notice to debtor
ch a. Must notify other secured parties (who have sent written notice of their interest), unless consumer
money goods
security b. Can only retain consumer goods if debtor has paid less than 60% of the purchase price or obliga-
interest
tion
perfected
within the (1) If 60% or more has been paid for a PMSI in consumer goods, secured party must sell
20-day collateral within ninety days after taking possession or be liable to the debtor unless debtor
grace waives this right to sale after the default
period
4. Secured party may sell collateral
(3) A
security
interest
perfected
before the
lien usually
has priority
by judgment or
court order)
has priority
over a prior
perfected
security in-
terest unl
state sta
express
provide
otherwise

EXAMPL
such as a r
the ordinar
business, furni
services o
with resp
subject to a secu
interest.
(artisan lien) has
priority.

h. Tru