Priority Flashcards
General Rule
The general rule is that priority goes to the first party to file or to perfect, whichever is earlier.
Two Unperfected Interests
Where two security interests are unperfected, the first to attach has priority.
PMSI in goods other than inventory or livestock
A PMSI in goods other than inventory or livestock has priority over conflicting interests in the same goods or their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods.
PMSI in inventory and livestock
A PMSI in inventory or livestock has priority over a security interest or proceeds that are cash or instruments if it is perfected at the time the debtor gets possession and any secured party who has filed their security interest receives authenticated notification of the PMSI.
Conflicting PMSIs in the Same Collateral
Where there are conflicting PMSIs with interest in the same collateral, a seller-financed PMSI will prevail over a financer-financed PMSI. Otherwise, the first to file or perfect prevails.
Perfection by Control
A security interest perfected by control has priority over a security interest perfected any other way.
Conflicting interests in a deposit account
Where there are conflicting interests in a deposit account, a secured party with their name as a co-owner will prevail. Second, the bank with control of the account will prevail.
Instruments priority
A purchaser of an instrument has priority over a perfected security interest in the instrument if the purchaser gives value and takes possession in good faith and without knowledge.
Proceeds perfection and priority
Generally, a security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral (so long as beyond the 20 day perfection period).
Authorized Sales to outside buyers
If a lease or sale is authorized by the secured party, the buyer takes free of the lien. This may be express or implied.
Unauthorized sales to outside buyers
If a lease or sale is not authorized, a buyer in the ordinary course of business will take free of the security interest if it was created by the buyer’s seller, even if it is perfected and the buyer knows of the security interest.
Sales to buyer in the ordinary course
A buyer in ordinary course is one who buys in good faith, without knowledge that the sale violates the rights of another, and in ordinary course of business from a seller who typically sells this type of goods.
Consumer-to-consumer goods
A buyer of consumer to consumer goods will take free of a perfected security interest if they buy 1) without knowledge of the security interest, 2) for value, 3) for their own consumer goods purpose, and 4) before a financing statement has been filed.
Judicial Liens
A prior perfected security interest has priority over a judicial lien.
If a PMSI files within 20 days after debtor receives collateral, it will have priority over a judicial lien.
