Priorities of Secured Transactions Flashcards
General Rule Under the UCC
Is first in time –> first in right.
- Among unperfected security interests, the first security interest to attach will prevail.
- Between a perfected security interest and an unperfected security, a perfected security interest will prevail
- Between two perfected security interests –> the security interest with the earliest time of filing or of perfection will prevail.
Special Rule for Instruments or Chattel Paper
When the collateral is an instrument or chattel paper, the secured party who perfects by taking possession will have priority over the secured party who perfects by filing.
Special Rules for PMSIs
A perfected PMSI will prevail over a conflicting security interest if the PMSI is perfected when the debtor receives possession of the collateral or within 20 days thereafter (second-in-time, first-in-right priority) except for an inventory.
Special Rules for PSMIs Regarding Inventories
The purchase $ creditor has to take additional steps to acquire priority over the first-in-time secured party including:
- the purchase $ creditor must notify the first secured party in an authenticated record that it expects to obtain a PMSI in the debtor’s collateral
- the PMSI must be perfected at the time the debtor receives possession of the inventory
Priority Disputes Between Lien Creditors and Security Interests
The first-in-time, first-in-right rule applies to priority contests between lien creditors. Therefore, secured party will have priority if:
- perfects before the lien creditor’s interest arises (when creditor sues and obtains judgment, which authorizes sheriff to seize property); or
- files a financing statement and evidences a security agreement (by authentication, possession, or control)
Special Rule for PMSIs v. Lien Creditors
If the PMSI is perfected within 20 days after the debtor receives the collateral, the PMSI will take priority over an intervening lien creditor.
Accession
Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost (e.g. a custom bicycle seat is an accession to the bicycle it is attached to)
Security Interest in an Accession
The priority of a security interest in an accession is determined in the same manner as with any other collateral, except that a security interest in an accession is subordinate to a security interest in the whole.
Commingled Goods
Goods that are physically united with other goods in such a manner that their identity is lost (flour to make a cake)
Security Interest in Commingled Goods?
A security interest does not exist per se in commingled goods, but attaches to the product that results when goods become commingled goods (e.g. if you take a security interest for flour that is used to bake a cake, the creditor has a security interest in the cake).
Priority of Security Interests in Commingled Goods
Multiple security interests in commingled goods will rank equally in proportion to the value of the collateral at the time it became commingled goods. Otherwise, ordinary priority rules apply.
Fixture Filing Rule
-If a creditor with a security interest in a fixture wants priority over the creditor who holds the mortgage on the realty to which the fixture is attached (so they can remove the fixture upon default) they must file a fixture filing.
Priority of Fixture Creditors v. Realty Creditors
- The general priority rule is first-in time, first in right. Therefore, fixture creditor must perfect interest with fixture filing before a mortgage is recorded.
- However, if the security interest in the fixture is a PMSI then second-in-time, first-in-right priority applies, so long as the security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
