Priorities

Question 1

Perfected vs. perfected

Answer 1

The first to either file or perfect wins.

Question 2

Unperfected vs. unperfected

Answer 2

The first to attach wins.

Question 3

Unperfected vs. perfected

Answer 3

Perfected wins over unperfected.

Question 4

PMSI superpriority

Answer 4

PMSIs are superior to prior perfected or unperfected security interest.

Question 5

Priority for PMSI in goods other than inventory/livestock

Answer 5

Yes, if the interest is perfected before or within 20 days after the debtor receives possession of goods.

Question 6

Priority for PMSI in inventory/livestock

Answer 6

Yes, if:

• Perfected at the time debtor gets possession, and
• Notice to other secured parties who filed

Question 7

Conflicting PMSIs

Answer 7

If more than one party has PMSI superpriority, then:

• Seller-financed > financier-financed
• Otherwise, the first to file or perfect wins.

Question 8

Special priority rules for conflicting SIs in investment property

Answer 8

• Control > other perfection methods
• Earlier control > later control
• Debtor’s intermediary > other creditors

Question 9

Special priority rules for conflicting SIs in deposit accounts

Answer 9

• Best: co-owner of account
• Next best: maintain account
• Worst: control agreement

Question 10

What is the general rule about secured interests and sale of the collateral?

Answer 10

When a buyer (or lessee) buys or leases something with a security interest on it, the security interest stays on the item.

Exceptions:

• Authorized sales
• Unauthorized sales (with special rules)
• Consumer-to-consumer sales

Question 11

What is the exception for authorized sales of secured collateral?

Answer 11

If the sale or lease of the collateral is authorized by the secured party free of the security interest, the transferee takes free of the security interest.

Authorization can be express or implied (e.g., sale of inventory to ordinary consumer).

Question 12

What is the exception for unauthorized sales of secured collateral to buyers in the ordinary course?

Answer 12

A BIOC takes free of a security interest created by the buyer’s seller, even if the interest is perfected and the buyer knows of the interest.

**The BIOC can know there’s a security interest, but can’t know that the sale of the item is a violation of the security agreement.

Question 13

Define “buyer in the ordinary course”

Answer 13

One who buys goods:

1. In good faith
2. Without knowledge that the sale violates the rights of another person
3. From a seller in the business of selling goods of the kind purchased.

**The BIOC can know there’s a security interest, but can’t know that the sale of the item is a violation of the security agreement.

Question 14

What is the exception for unauthorized sales of secured collateral to buyers NOT in the ordinary course?

Answer 14

• Take subject to perfected security interests, and
• Take free from unperfected security interests unless they know of the SI when they give value or take delivery.

Question 15

What is the garage sale rule for consumer-to-consumer sales of consumer goods?

Answer 15

A buyer takes free of SI (even if perfected), if the buyer buys:

1. Without knowledge of the SI
2. For value
3. For the buyer’s own personal, family, or household purposes
4. Before a financing statement covering the goods has been filed.

**Goods must be consumer goods in the hands of both buyer and seller.

Question 16

Secured party vs. judicial lien creditor

Answer 16

JLC wins if the lien arose before the security interest was perfected. If it didn’t, then the prior perfected security interest wins.

A prior security interest may also have priority if the secured party obtained a security agreement and filed a financing statement before the judicial lien arose, as long as eventually attaches and perfects. (& there’s a 20-day filing grace period for PMSIs).

Question 17

Secured party vs. possessory lien holder

Answer 17

Possessory lien holder has priority as long as the goods/services were provided in the ordinary course of business and the lien holder retains possession.

Question 18

What is a possessory lien?

Answer 18

1. Secures payment/performance of an obligation for services or materials furnished by a person in ordinary course of business;
2. Is created by statute or rule of law in favor of the person; AND
3. Whose effectiveness depends on the person’s possession of the goods.

E.g., mechanic’s lien if you don’t pay your repair bill