Priority Flashcards
Define unsecured creditors
Creditors without a security interest in the debtor’s collateral
True or false: Unsecured debtors have no rights against the property
True.
BUT they likely have contract rights against the debtor
How can an unsecured creditor obtain rights in property?
- Security interest by agreement
- Lien on the collateral
True or false: Liens are judicial only
False. Liens can be judicial or statutory
What is the priority rule for perfected security interest v. perfected security interest?
First in time to file OR perfect takes priority
*rewards an early filer even if subsequent filing party is first to attach or to perfect
What is the priority rule for perfected security interest v. unperfected security interest?
Perfected security interest > unperfected security interest
What is the priority rule for unperfected security interest v. unperfected security interest?
First to attach or become effective
What is the rule for perfected security interest v. Lien creditor?
Perfected Security Interest > Lien creditor
What is the rule for unperfected security interest v. Lien creditor?
Lien creditor > unperfected security interest
EXCEPT
Debtor w/authenticated security agreement (collateral) + financing statement on file - value > lien creditor
What is the rule for security interest v. statutory lien?
Statutory lien = created by statute > security interest IF
+ effectiveness of the lien depends on lienholder’s possession
+ lien secures payment or performance in the ordinary course of person’s business
+ Statute doesn’t provide otherwise
What is the rule for secured party v. secured party over future advances?
First party to file or perfect with respect to future advances
*even if the secured party has knowledge of the competing security interest when future advance was made
What is the rule for secured party v. lien creditor over future advances?
Advances made more than 45 days after person becomes a lien creditor are subordinate to the lien creditor unless
+ advance is made without knowledge of the lien OR
+ advance is made pursuant to a commitment entered into without knowledge of the lien
What is the rule for Buyer v. Perfected Security interest?
Unless the secured party authorizes the sale free and clear of its security interest, buyer takes “subject to” a perfected security interest
What is the BIOCB exception to the “subject to” rule for buyer v. perfected security interest?
BIOCB = free of security interest IF
+ Buyer buys goods form a merchant
+ In the ordinary course of the merchant’s business
+ Buyer acts in good faith, without knowledge that the sale violates the rights of others in the same goods (narrow)
+ Seller is engaged in selling goods of the kind
+ Seller is not a pawn broker
If any of these elements are not present, subject to rule applies
What is the garage sale exception to the “subject to” rule for buyer v. perfected security interest?
Consumer = Consumer free of security interest IF
+ Buyer buys consumer goods for value
+ For the buyer’s personal/household/family use
+ From a consumer seller
+ Without knowledge of security interest
UNLESS the secured party has filed a financing statement
If any of these elements are not present, subject to rule applies
What is the general priority rule for Buyer v. Unperfected security interest?
Unless a secured party authorizes the sale free and clear of the security interest, the buyer takes subject to a security interest
What is the one exception to the “subject to” rule for buyers and unperfected security interest holders?
Buyer will take free of an unperfected security interest if the buyer
- Gives value
- Receives delivery of collateral
- Without knowledge of the preexisting interest
True or false: All PMSIs are automatically perfected so long as the collateral is not subject to certificate of title law
False. Automatic perfection only applies to consumer goods.
All other non-consumer good PMSIs require the secured party to file a financing statement or take possession of collateral to perfect
If a PMSI perfects within 20 days of the debtor receiving collateral, will the PMSI take priority over a lien that arose during that 20 day period?
Yes.
Same rule for lien creditors v. security interest + 20 day grace period from when debtor receives the collateral, to perfect
True or false: PMSIs in goods (besides inventory and livestock) take priority over all other security interests, no matter when perfected
True, as long as the secured party perfects within 20 days of the debtor receiving the goods
What happens if a PMSI in goods (not inventory, not livestock) fails to perfect within 20 days and a security interest have a priority conflict?
First in time to file or perfect applies
True or false: PMSI for consumer goods will always meet the 20-day rule
True. PMSI in consumer goods are automatically perfected.
What is the super priority rule for PMSIs in inventory or livestock?
Priority over all other security interest in that same inventory IF
- Perfects before inventory is delivered to the debtor
- Sends authenticated notification of the PMSI to other secured parties
What is the rule for PMSI v. PMSI in a priority dispute?
Seller > Lender
Otherwise, apply first to filer or perfect rule
