Priority

Question 1

General priority rule

Answer 1

FIRST IN TIME = FIRST IN RIGHT.
Between unperfected interests, FIRST TO ATTACH wins.
Between perfected interests, FIRST TO PERFECT (without interruption) wins
Between unperfected and perfected interests, PERFECTED wins

Special rule for instruments/chattel paper: perfection by possession beats perfection by filing

Question 2

Special priority rules for PMSIs

Answer 2

A perfected PMSI will prevail over a conflicting security interest if the PMSI is perfected when debtor acquires the collateral or within 20 days thereafter

However, if the collateral is INVENTORY, need to take additional steps. either one of:

• notification to first secured party that debtor expects to obtain a PMSI in the collateral; or
• PMSI perfected at time debtor takes possession

Question 3

Priority disputes b/t lien creditors and security interests

Answer 3

Lien creditors are creditors that have an interest by attachment/levy or some other judicial collection procedure, or bankruptcy trustee

First-in-time, first-in-right applies. so security has priority over lien if secured party perfects or files before lien creditor’s interest arises

Question 4

Special rule for PMSI vs lien creditors

Answer 4

20 day rule: must perfect PMSI within 20 days after receipt of collateral, if so, takes priority over intervening lien creditor

Question 5

Accession and commingled goods

Answer 5

Accession is when goods are physically united but the identity of the original goods IS NOT lost
e.g. a bike seat attached to a bike
Priority is determined in the same interest as any other collateral, EXCEPT that interest in an accession is subordinate to interest in the whole

Commingled goods are goods that are physically united but the identity of the original goods IS lost
e.g. flour baked into a cake
Security interest no longer exists per se in commingled goods, but DOES attach to the resulting product. Multiple interests in commingled goods rank equally in proportion to the value of the collateral at the time of commingling. Otherwise, ordinary priority applies

Question 6

Buyers vs secured parties (rule and 4 exceptions)

Answer 6

Security interests SURVIVE sale of the collateral!
Exceptions:
- secured party authorizes sale free of the interest
- buyer is a BIOCOB - buyer in ordinary course of business. 4 part test: 1) buys in good faith, 2) w/o
knowledge of violation of rights of another in the goods, 3) in ordinary course of business, 4) from
person in the business of selling goods of that kind
- consumer-to-consumer / “garage sale” exception: bought goods for personal/family/home use from
someone who used for same purpose. must buy for value, w/o knowledge of interest, before financing
statement filed. remember: PMSIs can be perfected without filing! most common application
- buyer of chattel paper has priority if they buy in good faith and ordinary course of business, gives value
and takes possession, and paper does not indicate it’s been assigned