Priorities Flashcards
General rule for priorities
General rule: “first in time, first in right”
Priority when unperfected SI v. unperfected SI
first SI to attach = priority
Priority when perfected SI v. unperfected SI
perfected SI = priority
Priority when perfected SI v. perfected SI
First to file or perfect = priority
Priority if collateral instrument or chattel paper
SP that perfects by possession has priority over SP that perfects by filing
PMSI rule for priority
A PMSI prevails over an earlier perfected SI (i.e., “second in time, first in right”) if the PMSI is perfected:
* when Debtor gets possession of the collateral; or
* within 20 days of Debtor receiving possession
Exception to special PMSI rule
Exception: When the collateral is inventory, the party with the PMSI must also:
* notify the SP, in an authenticated record, that it is obtaining a PMSI in Debtor’s collateral; and
* be perfected when Debtor receives possession of the inventory (no grace period)
Lien creditor situations
LC acquires interest in the property by attachment, levy, or similar judicial collection procedures, or is a bankruptcy trustee
When SP has priority over LC
SP has priority over a LC if SP:
§ perfects before the LC’s interest arises; or
§ files a financing statement and evidences a security agreement (by authentication, possession, or control) before the LC’s interest arises
Special lien creditor rule for PMSI
PMSI takes priority over an intervening LC if the PMSI is perfected within 20 days of when Debtor receives the collateral
Accessions
Goods physically united with other goods but the identity of the original goods is not lost
Priority rule for accessions
Ordinary rules of priority apply except a SI in the accession is subordinate to a SI in the “whole” of the good if perfected pursuant to a certificate-of-title statute
Commingled goods
Goods so physically united with other goods that the identity of the original goods is lost
Priority for commingled goods
Ordinary rules of priority apply except for multiple SIs in commingled goods
Each SI ranks equally in proportion to the value of the collateral at the time it became commingled goods
Buyer of collateral vs SP
SI survives a sale of the collateral unless:
* SP authorized the sale free of the SI;
* buyer in the ordinary course of business (BIOCOB); or
* consumer-to-consumer transaction
Buyer in the ordinary course of business (BIOCOB)
A BIOCOB is a person who:
o buys in good faith;
o without knowledge that the sale violates SP’s rights in the goods;
o in the ordinary course of business; and
o from a person in the business of selling those goods
Consumer-to-consumer transaction
Applies to goods bought for personal, family, or household use by someone who uses the goods for that purpose
A buyer takes free of an SI created by the seller if:
o buys for value;
o without knowledge of the SI; and
o before a financing statement is filed
Priority if buyer of chattel paper vs. SP
Buyer of chattel paper has priority over an SI in proceeds of inventory if:
§ bought in good faith and in ordinary course of business;
§ gave value and took possession or control of the chattel paper; and
§ the chattel paper does not indicate that it’s been assigned to another party
Priority rules for buyer of collateral vs. SP of fixtures
When collateral consists of a fixture, the creditor with a SI in the fixture wants priority over the mortgagee; to do so, the creditor needs to file a fixture filing
“First in time, first in right” applies if the SP with an SI in the fixture files a fixture filing –> mortgage has priority if recorded before the SP files a fixture filing
Exception to priority rule for fixtures
Exception: A PMSI in the fixture has super-priority (“second in time, first in right”) if the SI is perfected by a fixture filing:
o before becoming fixtures, or
o within 20 days of the goods becoming fixtures
