Priorities Flashcards
What is the general rule regarding priority under Article 9?
First-in-time, first-in-right
Which security interest prevails among unperfected security interests?
The first security interest to attach
Between a perfected security interest and an unperfected security interest, which prevails?
Perfected security interest
In a conflict between two perfected security interests, which interest prevails?
The security interest with the earliest time of filing or perfection
What special rule applies to instruments or chattel paper regarding priority?
The secured party who perfects by taking possession has priority over the one who perfects by filing
What conditions allow a perfected PMSI to prevail over a conflicting security interest?
Perfected when the debtor receives possession of collateral or within 20 days thereafter
What additional steps must a purchase-money secured party take to acquire priority over the first-in-time secured party when the collateral is inventory?
- Notify the first secured party of the PMSI expectation
- Perfect the PMSI at the time the debtor receives possession of the inventory
What is a lien creditor?
A creditor that has acquired an interest in the property by attachment, levy, or similar judicial collection procedures
Under what conditions does a secured party have priority over a lien creditor?
- Perfects before the lien creditor’s interest arises
- Files a financing statement before the lien creditor’s interest arises
What special rule applies to PMSIs in relation to lien creditors?
If perfected within 20 days after the debtor receives the collateral, the PMSI takes priority over an intervening lien creditor
What is an ‘accession’?
Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost
How is the priority of a security interest in an accession determined?
Subordinate to a security interest in the whole, which is perfected by compliance with the requirements of a certificate of title statute (i.e., cars and trucks)
What are ‘commingled goods’?
Goods that are physically united with other goods in such a manner that their identity is lost
How does a security interest attach to commingled goods?
Attaches to the product that results when goods become commingled
What happens to multiple security interests in commingled goods?
They rank equally in proportion to the value of the collateral at the time it became commingled
Does a security interest survive a sale of the collateral?
Yes, with exceptions:
- Buyer is a buyer in the ordinary course of business (BIOCOB).
- The sale qualifies as a consumer-to-consumer or “garage sale” exception.
- A buyer of chattel paper has priority over a security interest in proceeds of inventory subject to a security interest in a specific situation.
- The secured party authorizes the sale free of the security interest
What is the BIOCOB exception?
A Buyer in the Ordinary Course of Business (BIOCOB) is someone who purchases goods in good faith, without knowing the sale violates another’s rights, as part of a routine transaction, from a seller engaged in selling that type of goods. The focus is on the seller’s business to determine if the buyer qualifies as a BIOCOB.
What is the consumer-to-consumer or ‘garage sale’ exception?
A buyer takes free of a security interest if they buy for value, without knowledge of the security interest, and before a financing statement is filed
What must happen for a buyer of chattel paper to have priority over a security interest in proceeds of inventory?
- Buyer must buy in good faith and in the ordinary course of business
- Buyer gives value and takes possession or control of the chattel paper
- Chattel paper does not indicate it has been assigned to another party
What is the general priority rule for fixtures?
First-in-time, first-in-right
How can a creditor with a security interest in a fixture obtain priority over a mortgagee?
By filing a fixture filing
