Priority Flashcards

1
Q

When does priority become an issue?

A

Where the secured party and some third party are claiming the same collateral

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2
Q

What is the general rule for priority?

A

First to file or perfect, whichever occurs first, has priority

  • operates as a “pure race statute”
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3
Q

What is the rule if no party files or perfects?

A

First party to attach has priority

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4
Q

What is the priority rule concerning purchase money security interests in goods other than inventory or livestock?

A

A PMSI in such goods has priority over a conflicting security interest in the same goods or its proceeds if:

  • the PMSI is perfected at the time the debtor received possession of the collateral; or
  • within 20 days thereafter

NOTE: always remember to state the general rule

NOTE: this is inapplicable to consumer goods, as well

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5
Q

What is the priority rule concerning purchase money security interests in inventory or livestock?

A

PMSI in inventory or livestock has priority over a conflicting security interest in the same inventory or livestock if:

before the debtor receives possession** of the inventory or livestock, the **secured party

  • perfects; and
  • sends an authenticated notification to holders of previously filed conflicitng security interests in the collateral
  1. inventory–must receive notice within 5 years before the debtor receives possession of the inventory
  2. livestock–must receive notice within 6 months before the debtor receives possessino of the livestock
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6
Q

What is the priority rule for a purchase money security interest in crops?

A

A secured party who gives new value** to **enable** a **debtor to grow crops

within 3 months before the crops are planted

has priority over perfected security interests covering obligations incurred more than 6 months before the crops were planted

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7
Q

What happens when there are conflicting purchase money security interests?

A

A seller** secured party **PMSI** has **priority** over **lender** secured party **PMSI

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8
Q

What are the priority rules for investment property?

A

A security interest perfected by control has priority** **over** a security interest perfected by **any other method

If conflicting control** security interests, rank according to **time of obtaining control

A security interest granted to a debtor’s intermediary has priority** over a security interest **granted by the debtor to another secured party

Notwithstanding the above, first to file or perfect governs priority otherwise

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9
Q

What are the priority rules for deposit accounts?

A

A security interest perfected by control has priority over** a security interest perfected by **any other method (e.g., cash proceeds)

If conflicting interests were perfected by control,** **rank according to time of obtaining control

A secured party who has obtained control by putting the deposit account in its own name** has **priority** over **all other secured parties with control

A bank that has control because it maintains the deposit account** has **priority** over **all other secured parties

  • EXCEPT a party who obtained control by putting in his name
  • Also bank with which a deposit account is maintained may exercise any right of recoupment or setoff except for obtained control by putting in his name

NOTE: if a debtor transfers money or deposit account funds**, the **transferee** of the funds takes **free of a security interest** in the funds **unless the transferee acts in collusion with the debtor in violating the rights of the secured party

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10
Q

What are the priority rules for a purchaser of chattel paper?

A

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

  • security interest that arises merely as proceeds of inventory; and
  • any other security interest as long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party

NOTE: any notation** on the chattel paper **of assignment is sufficient to give notice

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11
Q

What are the priority rules for a purchaser of instruments?

A

Priority over a perfected security interest 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
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12
Q

What are the priority rules for authorized sales of the collateral?

A

The buyer takes free of the security interest

  • express authorization;
  • implied authorization (e.g., inventory in the ordinary course of business)

NOTE: a written consent requirement may be waived via acquiescence

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13
Q

What are the priority rules for unauthorized sale of the collateral to a buyer in the ordinary course of business?

A

General Rule

**A buyer _in the _ordinary course of business**

  • does the seller usually sell this stuff;
  • does the seller usually sell this stuff in this manner

takes free of a security interest

created by his seller even though the security interest is perfected and even though the buyer knows of its existence

  • exception: person buying farm products from a person engaged in farming ops
  • exception: the buyer knows that sales is in violation of the terms of the security agreement
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14
Q

What are the priority rules for unauthorized sales to buyers not in the ordinary course of business?

A

Buyers not in the ordinary course of business

  • take subject** to **perfected security interests
  • take free** from **unperfected** security interests (and unperfected agricultural liens) **unless they know of the sercurity interest

NOTE: a buyer not in the ordinary course of business can gain priority over a previously perfected secured party

  • who makes a future advance on collateral after the buyer purchases the collateral IF:
  1. the advance was made after the secured party learned of the purchase; or
  2. more than 45 days after the purchase
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15
Q

What is the priority rule for unauthorized sales to consumers in consumer sales?

A

In consumer goods**, a buyer takes **free** of a **security interest even though it is perfected if:

  • he buys without knowledge of the security interest
  • he buys for value; and
  • he buys for his personal family or household purposes

UNLESS** the secured party **filed a financing statement covering such goods

NOTE: the goods must be consumer goods in the hands of both the buyer and the seller

  • consumer-to-consumer sales
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16
Q

What is the priority rule for a PMSI versus a buyer not in the ordinary course?

A

If the secured party files** with respect to a **purchase money security interest

within 20 days after the debtor receives possession of the collateral,

he takes priority** **over the

right of a buyer not in the ordinary course

which arises between** the time the security interest **attaches** and the time of **filing

17
Q

What is the general priority rule of a secured party versus a judicial lien creditor?

A

Perfected by filing = at the time the judgment was duly recorded

Then apply the general rule–first to file or perfect

NOTE: PMSI v. Lien Creditor

  • if a secured party files with respect to a purchase money security interest within 20 days after the debtor receives possession** of the collateral, take **priority over the rights of a lien creditor which arises between the time the security interest attaches and time of filing

NOTE: a lien creditor will have priority** over a previously perfected secured party who makes a **future advance on collateral if

  • the future advance was made more than 45 days after the lien arose,
  • unless the advance was made without knowledge of the lien OR pursuant to a commitment made without knowledge of the lien
18
Q

What is the priority rule regarding a secured party and a statutory lien claimant?

A

Generally, the secured party takes priority over a statutory lien claimant