Priorities

Question 1

What is the priority between the following:

1. Priority between unperfected secured parties?
2. Priority between unperfeted and perfected secured parties?
3. Priority between perfected secured parties?

Answer 1

1. When two unperfected security interests conflict, the first to attach has priority;
2. A perfected security interest generally prevails over an unperfected security interest;
3. Conflicting perfected security interests rank in priority according to time of filing or perfection.

Question 2

What sort of priority do Purcahse MOney Security Interests have?

Answer 2

PMSI’s enjoy a superpriority - they are superior to prior perfected security interests in the same collateral if certain conditions are met.

Question 3

What are the special rules for when there are conflicting PMSI’s in priority?

Answer 3

If more than one party has a PMSI superpriority in collateral, the following applies:

1. A secured party who has a PMSI in collateral as a seller has priority over a secured party who has a PMSI in the same collateral as a lender;
2. Otherwise the first secured party to file or perfect prevails over the other.

Question 4

How are the following PMSI’s perfected?

1. Consumer goods?
2. Equipment?
3. Inventory?

Answer 4

1. Consumer goods PMSI’s are automatically perfected;
2. PMSI in equipment can be perfected (usually by filing) anytime within 20 days after the debtor gets possession of the collateral; and
3. PMSI in inventory must be perfected (usually by filing) by the time the debtor gets possession of the collateral and otherwise with a security interest in the inventory must be given notice.

Question 5

What are the special rules for purchasers of chattel paper?

Answer 5

If a purchaser of chattel paper in good faith gives new value and takes possession of the chattel paper in the ordinary court of business, or takes control, the purchaser will have priority over:

1. A security interest that arises merely as proceeds of inventory, as long as it does not indicate that it has been assigned to anyone other than the purchaser;
2. Any other security interest in the paper as long as the paper purchaser acquires its interest without knowledge that its purchase violated the rights of the secured party.

Question 6

What are the special rules regarding purchasers of instruments and their priority?

Answer 6

A purchaser of an instrument has priority over a perfected security inters in the instrument if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.

Question 7

What is filing collateral as it applies to priority in proceeds?

Answer 7

Filing collateral is collateral in which a secured party would normally achieve priority by filing a financing statement. (goods, accounts, commercial tort claims, general intangibles, and non-negotiationable documents).

Question 8

What is non-filing collateral as it applies to priority in proceeds?

Answer 8

Non-filing collateral is collateral i which a secured party would normally achieve priority by possession or control, rather than filing (cash, cattle paper, nonconsumer deposit accounts, negotiable documents, instruments, and investment property).

Question 9

What is the general rule for priority of proceeds?

Answer 9

Generally, a perfected security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral, as long as the perfection of the security interest in the proceeds extends beyond the 20-day temporary perfection period.

Question 10

What is the special rule for proceeds of non-filing collaterals?

Answer 10

A secured party has priority in the proceeds of non-filing collateral if:
1. She has priority in the original collateral,
2. her security interest in the proceeds is perfected; and
3. the proceeds are cash proceeds or proceeds of the same type as the original collateral.
If the proceeds are proceeds of proceeds, all intervening proceeds must be cash proceeds, proceeds of the same type as the original collateral or accounts relating to the collateral.

Question 11

What is the general rule for priority for a fixture and what is the exception?

Answer 11

Generally, in a contest between a holder of a security interest in a fixture and a holder of an interest in the real property