Priorities Flashcards
Transferee versus secured party with a security interest
If the collateral is transferred and transferee of the collateral is not a buyer, the security interest generally continues in the collateral unless the secured party authorized the transfer free of the security interest.
Buyer versus secured party with an unperfected security interest
A buyer, other than a secured party, takes free of an unperfected security interest in the same collateral if the buyer:
1) Gives value; and
2) Receives delivery of the collateral;
3) Without knowledge of the existing security interest.
Buyer versus secured party with a perfected security interest
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized its sale free of the security interest.
Buyers in the Ordinary Course of Business (BOCB)
A buyer in the ordinary course of business takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
A BOCB is a person who:
1) Buys goods (other than farm products);
2) In the ordinary course;
3) From a seller who is in the business of selling goods of that kind;
4) In good faith; and
5) Without knowledge that the sale violates the rights of another in the same goods.
Consumer Buyer
A consumer buyer of consumer goods takes free of a security interests, even if perfected, unless prior to the purchase, the secured party filed a financing statement covering the goods. A consumer buyer is a person who:
1) Buys consumer goods for value;
2) For his own personal, family, or household use,
3) From a consumer seller; and
4) Without knowledge of the security interest.
Purchasers of Chattel Paper
The purchaser of chattel paper has priority over the interest of a secured party who claims the chattel paper merely as proceeds of inventory subject to a security interst provided that:
1) The purchaser gives new value and takes possession or obtains control of the chattel paper;
2) The purhcase is made in good faith and in the ordinary course of the purchaser’s business; and
3) The chattel paper does not indicate that it has been assigned to an identified assignee other than the purchaser.
Buyer Not in the Ordinary Course of Business–Future Advances
A buyer of goods not in the ordinary course of business takes free of a security interest to the extent that it secures an advance made after the earlier of:
i) The time the secured party acquires knowledge of the buyer’s purchase; or
ii) 45 days after purchase.
Perfected security interest versus perfected security interest
When there are two or more perfected secured parties with rights in the same collateral, the first to file or perfect is security interest has priority.
Perfected security interest versus unperfected security interest
If only one security interest is perfected and the other is not, then the perfected interest has priority over the unperfected one.
Unperfected security interest versus unperfected security interest
If neither interest is perfected, then the “first in time, first in right” rule applies with the critical time being the time of attachment.
PMSI in goods other than inventory or livestock
A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
PMSI in inventory or livestock
A PMSI in inventory or livestock prevails over all other security interests in the same collateral, even if they were previously perfected, if:
1) The PMSI is perfected by the time the debtor receives possession of the collateral; and
2) The purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.
PMSI versus PMSI
If there are two or more competing PMSIs, then the first to file or perfect rule generally governs priority.
A lender PMSI versus a seller PMSI
The PMSI taken by the seller has priority.
Proceeds from a PMSI in goods
The priority of a PMSI in goods generally extends to the identifiable proceeds of the original collateral, but only as to proceeds in which the security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
Proceeds from a PMSI in inventory
The priority of a PMSI in inventory extends to identifiable cash proceeds received on or before the delivery of the inventory to a buyer if:
1) The PMSI is perfected when the debtor receives possession of the inventory; and
2) The purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest.
Security interest in fixtures versus real property interest
A security interest in fixtures has priority over an interest in the real property with which the fixtures are associated if the security interest in fixtures is perfected by a fixture filing before the real property interest is recorded.
Special rule for a PMSI in fixtures
A PMSI in fixtures has priority over a prior interest in the real property with whcih the fixtures are associated when:
1) The debtor has an interest of record in the real property or is in possession of the real property; and
2) The security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
Construction mortgage
A construction mortgage has priority over a subsequent interest in a fixture, including a PMSI in a fixture.
