Priorities

Question 1

General Creditor vs. SI (perf or un-perf)

Answer 1

SI always prevails over general creditor’s rights

Question 2

Judicial Lien Creditor vs. Perf / Unperf SI

Answer 2

Perfected SI > Judicial lien
Judicial Lien > unperfected SI… UNLESS!!
The only reason SI isn’t perfected is that the SP hasn’t given value (bank loan)

Question 3

What is the PMSI exception regarding creditor rights?

Answer 3

If a PMSI is perfected before or within 20 days after debtor receives possesion of collateral, the PMSI has priority over a creditor’s rights that arose b/t the time of attachment and the time of the filing.

Question 4

How does priority apply to advances?

Answer 4

an SI securing an advance is subbordinate to a lien creditor’s rights when the advance is made more than 45 days after the person becomes a lien creditor, UNLESS the advance or committment is made without knowledge of the lien.

Question 5

What is the priority related to
statutory or common-law lien creditors?
(i.e. nonconsenual lien; mechanic’s lien)

Answer 5

These are possessory liens. They have priority over ANY SI if the lien secures payment for goods or services provided in the ordinary course of business (unless a statute says differently)

Question 6

Transferee vs. SP with SI

Answer 6

the SI generally continues in the collateral unless the SP authorized the transfer free of the SI

Question 7

Buyer’s Rights vs. Unperfected SI

Answer 7

Buyer takes the collateral FREE of the SI if the buyer:
1. gives value, and
2. receives delivery
3. without knowledge of the SI

Question 8

Buyer’s Rights vs. Perfected SI

Answer 8

Buyer generally takes the collateral subject to the SI

Question 9

Who is a buyer in the ordinary course of business (BOCB)?

Answer 9

Someone who:
1. buys goods (not farm products) by giving NEW value (cash, etc - not satisfaction of existing debt);
2. in the ordinary course;
3. from a seller in the business of selling goods of that kind;
4. in good faith; and
5. without actual knowledge that the sale violates another’s rights in the goods

Result: BOCB takes FREE of any SI in goods!

Question 10

Who is a consumer buyer?

Answer 10

A buyer 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 SI

This is the garage sale rule!

The consumer will take FREE of any SI in consumer goods unless a SP has filed a FS coverying the goods.

this is why a PMSI in consumer goods may want to file!

Question 11

Purchaser of Chattel Paper?

Answer 11

If buyer gives new value and has possesion/control of the collateral; the purchase is made in good faith and in the OCOB, and the chattel paper does not indicate an assigment to an identified assignee, OR purchase made w/out knowledge that it violoates SPs rights…
they have priority over an SI in the chattel paper!

Question 12

Buyer of negotiable instrument or document?

Answer 12

Buyer takes free of any SI

Question 13

Buyer NOT in the ordinary course of business
(future advances)

Answer 13

Buyer generally takes FREE of any SI that secures an advance made after the earlier of (1) the time the SP acquires knowledge of purchase, or (2) 45 days after purchase

Buyer takes subject to SI if the advance is made pursuant to a commitment entered into w/out knowledge of the buyer’s purchases and before the expiration of 45 days

Question 14

Perfected SI vs. Perfected SI

Answer 14

First to file or perfect has priority; a lapse in filing restarts the clock

Question 15

Perfected SI vs. Unperfected SI

Answer 15

Perfected SI has priority

Question 16

Unperfected SI vs. Unpefected SI

Answer 16

the first to ATTACH has priority
(“first in time, first in right” rule)

Question 17

PMSI v. non-PMSI

Answer 17

Generally PMSI has priority

Question 18

PMSI in goods (other than inventory or livestock)
vs.
any SI

NOT “consumer” goods… just “goods”!

Answer 18

PMSI has priority if perfected before or w/in 20 days after debtor receives possession of collateral

Question 19

PMSI in inventory or livestock
vs.
any SI

Answer 19

PMSI has priority if perfected by the time the debtor receives possession of the collateral, AND
the PMS-party sends an authenticated notice of the PMSI to any holder of any conflicting SI before the debtor receives possession of the collateral

Question 20

Perfected PMSI vs. Perfected PMSI

Answer 20

The first to file or perfect as priority, except:
A seller with a PMSI has priority over a lender with a PMSI

Question 21

Proceeds from PMSI in goods… priority?

Answer 21

the priority of the PMSI in goods generally extends to the proceeds of the original collateral, if the SI is perfected when the debtor receives possession or w/in 20 days thereafter

Question 22

(perf/unperf) SI in fixtures
vs.
Real Property Interest

Answer 22

an SI in fixtures has priority over interest in RP with which the fixtures are associated IF the SI is perfected by a fixture filing BEFORE the real property interest is recorded.

Question 23

Perfected SI in fixtures
vs.
Subsequent Judicial Lien

Answer 23

Perfected SI in fixtures has priority

Question 24

(perf/unperf) SI in fixtures
vs.
Prior construction mortgage

Answer 24

Prior construction mortgage has priority if recorded BEFORE the goods become fixtures.