Priorities Flashcards
Basic priority rule
“first in time, first in right”
Unperfected SI v. unperfected SI – first SI to attach.
Perfected SI v. unperfected SI – perfected SI
Perfected SI v. perfected SI – first to file or perfect
Priority when Collateral is an Instrument or Chattel Paper
Secured party that perfects by POSSESSION has priority over secured party that perfects by filing.
Special Purchase-Money Security Interest priority rules
PMSI prevails over an earlier perfected SI (“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.
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EXCEPTION: when the collateral is inventory, the party with the PMSI must also:
+ notify SP, in an authenticated record, that it is obtaining a PMSI in Debtor’s collateral;
AND
+ be perfected when Debtor receives possession of inventory (no grace period)
Lien Creditor v. Secured Party
Secured Party has priority over Lien Creditor if SP:
+ perfects before LC’s interest arises; OR
+ files a financing statement and evidences a security agreement (by authentication, possession, or control) before LC’s interest arises.
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.
Ordinary rules of priority apply EXCEPT a security interest in the accession is subordinate to a security interest 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.
Ordinary rules of priority EXCEPT for multiple security interests 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 v. Secured Party
Security interest survives a sale of the collateral UNLESS:
+ Secured party authorized the sale free of the security interest;
+ buyer in the ordinary course of business; OR
+ consumer-to-consumer transaction
Buyer in the Ordinary Course of Business (BIOCOB)
A BIOCOB is a person who:
+ buys in good faith;
+ without knowledge that the sale violates secured party’s rights in the goods;
+ in the ordinary course of business; AND
+ 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.
Buyer takes free of a security interest created by the seller if:
+ buys for value;
+ without knowledge of the security interest; AND
+ before a financing statement is filed.
When does a buyer of chattel paper have priority over a security interest?
Buyer of chattel paper has priority over a security interest 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
+ chattel paper does not indicate that it’s been assigned to another party.
How does one establish priority in a security interest for a fixture?
When collateral consists of a fixture, the creditor with a security interest 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 secured party with a security interest in the fixture files a fixture filing – mortgage has priority if recorded before the secured party files a fixture filing.
EXCEPTION: a PMSI in the fixture has SUPER-priority if the security interest is perfected by a fixture filing:
+ before becoming fixtures, OR
+ within 20 days of the goods becoming fixtures.
