Priorities Flashcards
In priority disputes, purchasers of what should be treated as secured parties?
- Chattel paper
- Promissory notes
- Accounts
- Payment intangibles
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Who are the potential claimants in priority disputes?
- Secured creditors
- Unsecured creditors
- Lien creditors
- Purchasers of chattel paper, promissory notes, accounts, payment intangibles
- Buyers or transferees of other collateral
Do unsecured creditors have rights in the property?
No, but they likely have contract rights against the debtor
Who has priority: perfected security interest vs. perfected security interest? (no PMSIs)
The first in time to file or perfect
Who has priority: perfected security interest vs. unperfected security interest?
The perfected security interest
Who has priority: unperfected security interest vs. unperfected security interest?
The first to attach or become effective
Who has priority: perfected security interest vs. lien creditor?
The perfected security interest
Who has priority: unperfected security interest vs. lien creditor?
The lien creditor
Filed but unattached exception: If a financing statement has been filed but the collateral is not attached, then the security interest has priority
Who has priority: security interest vs. statutory lien?
The statutory lien, as long as:
- The effectiveness of the lien depends on the lienholder’s possession of the goods
- The lien secures payment or performance of an obligation for services furnished in the ordinary course of the person’s business; and
- The statute doesn’t provide otherwise
Note: This applies even if the security interest is perfected
Who has priority: secured party vs. secured party over future advances?
The first to file or perfect with respect to future advances
Note: This applies even if the secured party has knowledge of the competing security interest when the future advance is made
Who has priority: secured party vs. lien creditor over future advances?
If the advance is made within 45 days of the lien creditor’s lien arising, then the secured party has priority
Otherwise, if:
- The advance is made more than 45 days after the person becomes a lien creditor; and
- The advance is made without the knowledge of the lien OR pursuant to a commitment entered without knowledge of the lien;
then the lien creditor has priority
If there is a dispute between a buyer and a secured party, how do you phrase the priority question?
Did the buyer take the collateral free of a security interest or subject to a security interest?
What is the general rule for buyer vs. perfected security interest?
Unless the secured party authorizes the sale free and clear of its security interest, a buyer takes subject to a perfected security interest
What are the exceptions for buyer vs. perfected security interest?
- Buyer in the ordinary course of business (BIOCB)
- Garage sale exception (consumer to consumer exception)
What are the requirements for a buyer in the ordinary course of business (BIOCB) exception?
- The buyer buys goods from a merchant
- In the ordinary course of the merchant’s business
- The buyer acts in good faith
- The buyer has no knowledge that the sale violates the rights of others in the same goods
- The seller is engaged in the business of selling goods of this kind
- The seller is not a pawn broker