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Secured Transactions: Perfection and Priority

In re Hiram's Herd

Hiram's dairy farm was growing by leaps and bounds. On July 10, he entered into an agreement with his neighbors, Hazel and Herschel, who had decided to retire from farming. He bought their entire herd of two hundred Holsteins for a substantial cash down payment and a $200,000 promissory note, payable in a single lump sum in two years. To secure the note, he granted Hazel and Herschel a security interest in the cows.

Then on October 1, Hiram borrowed $300,000 from Farmers State Bank to purchase additional milking machines and other equipment. Farmers secured its loan by requiring Hiram to grant the bank a security interest in all his farm equipment and livestock, including his recently acquired herd. Farmers perfected its security agreement by filing a financing statement with the county clerk the next morning.

In early December, Hazel and Herschel purchased tickets for a world cruise on a luxury ocean liner. Before they departed, they visited their attorney's office to update their wills. They also asked him to perfect their security interest in the Hiram's herd by filing a financing statement with the county clerk.

Early the next spring, the USDA discovered high bacteria levels in Hiram's milk and shut down his dairy operations pending further analysis. However, his customers panicked and canceled their orders. As a result, Hiram defaulted on his payments to the bank. The bank took possession of the herd in order to sell the cows at auction. Hazel and Herschel filed suit against the bank to protect their interest.

Whose security interest has priority?
If any statutes are relevant to this problem, explain how they apply.
Remember to discuss and properly cite two cases to support your analysis.

Any other references would be great if you noted them.

Solution Preview

According to UCC - Article 9 - Secured Transactions. Part 3: Perfection and Priority: The security interest of that holder of security has priority that has been perfected.

On October 2, Hiram borrowed $300,000 from Farmer's State Bank to purchase milking machines and equipment. Hiram granted the bank security interest in equipment and the newly purchased herd. ...

Solution Summary

This posting discusses the security interest of a holder of a security. It also discusses the concepts of perfection and priority.

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