Priorities Flashcards
Priority between unperfected secured parties?
If both security interests are unperfected, the first to attach has priority.
Priority between unperfected and perfected secured parties?
Generally, a perfected security interest prevails over an unperfected security interest, even if the perfected secured party takes her security interest with knowledge of the earlier unperfected security interest
General rule for priority between perfected secured parties?
The general rule is that priority goes to whichever party was the first to either file or perfect, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection
What is the special priority rule for investment property?
A security interest perfected by control has priority over a security interest perfected by any other method.
- If there are conflicting security interests perfected by control, they rank according to the time of obtaining control
What is the special priority rule for deposit accounts?
A security interest in a deposit account that is perfected by control has priority over a conflicting security interest that is perfected by another method. Conflicting security interests that are perfected by control rank according to the time of obtaining control, subject to the following exceptions:
- a secured party who has obtaining control by putting the deposit account in the party’s name has priority over all other secured parties with control; and
- a bank that has control because it maintains the deposit account has priority over all secured parties with control, other than the party that has obtained control by putting the account in her name
PMSI “superpriority”
PMSIs enjoy a superpriority–they are superior to prior perfected security interests in the same goods if certain conditions are met.
PMSI in inventory
A PMSI in inventory has priority over a conflicting security interest in the inventory itself , proceeds that are chattel paper, proceeds that are instruments, and any identifiable cash proceeds that are received on or before delivery to a buyer if:
- the PMSI in inventory is perfected at the time the debtor gets possession of the inventory (the filing must take place before the inventory is delivered to the debtor); and
- any secured party who has filed her security interest in the same inventory receives an authenticated notification of the PMSI before the debtor receives possession of the inventory, and the notification states that the purchase money party has or expects to take a PMSI in inventory of the debtor described by kind or type (this notification is effective for deliveries of the same type of collateral for five years)
Consignor has PMSI in inventory
Under Article 9, a consignor’s interest in the consigned goods is considered to be a PMSI in inventory. Therefore, a consignor can acquire PMSI superpriority in consigned goods if she complies with the requirements for gaining PMSI superpriority in inventory.
PMSI in goods other than inventory and livestock
Such a PMSI has priority over conflicting security interests in the same goods and their identifiable proceeds only if the interest is perfected before or within 20 days after the debtor receives possession of the goods
- No notification requirements
PMSI in software
Remember: a PMSI in software arises if there is a PMSI covering both the software and the computer. This PMSI in software and its identifiable proceeds has the same priority as the security interest in the computer in which the software is used.
- So, if the computer is inventory, the PMSI in software has superpriority if the PMSI in the computer has superpriority
- If the computer is not inventory, the PMSI in the software has superpriority if the PMSI in the computer has superpriority under the applicable rule for noninventory goods
Conflicting PMSIs
If more than one party has PMSI superpriority in collateral, the following rules apply:
- a secured party who has a PMSI in collateral as a seller has priority over a secured party who has a PMSI in the same collateral as a lender
- Otherwise, the first secured party to file or perfect prevails
“Purchasers” of Chattel paper - special rules
If a purchaser of chattel paper in good faith gives new value and takes possession of the chattel paper in the ordinary course of business (or takes control of ECP), the purchaser will have priority over:
- a security interest in chattel paper that arises merely as proceeds of inventory, as long as the chattel paper does not indicate that it has been assigned to anyone other than the purchaser; and
- any other security interest in the chattel paper as long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party. Any notation on the chattel paper stating that the chattel paper has been assigned to a secured party is sufficient to give the purchaser knowledge that the purchase violates the rights of the secured party.
“Purchasers” of instruments - special rules
A purchaser of an instrument has priority over a perfected security interest in the instrument if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.
- any notation on the instrument stating that the instrument has been assigned to a secured party is sufficient for knowledge
- here, the purchaser does not have to give “new” value or take possession “in the ordinary course of business.”
How is the priority in proceeds determined?
Article 9 divides collateral into “filing collateral” and “non-filing collateral.” Filing collateral is collateral in which a secured party would normally achieve priority by filing a financing statement (goods, accounts, commercial tort claims, general intangibles, and nonnegotiable documents). Non-filing collateral is collateral in which a secured party would normally achieve priority by possession or control, rather than filing (e.g., cash, chattel paper, NDAs, negotiable documents, instruments, and IP).
What is the general rule for priority in proceeds?
Generally, under the “first to file or perfect” rule, a perfected security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral, as long as the perfection of the security interest in the proceeds extends beyond the 20-day temporary perfection period.
Special rules for priority in proceeds
A secured party has priority in the proceeds of non-filing collateral if:
- she has priority in the original collateral,
- her security interest in the proceeds is perfected, and
- the proceeds are cash proceeds or proceeds of the same type as the original collateral
If the proceeds are proceeds of proceeds, all intervening proceeds must either be cash proceeds, proceeds of the same type as the original collateral or accounts relating to the collateral.