Priority

Question 1

What are the priority rules for collateral that is an Instrument or Chattel Paper?

Answer 1

SP that perfects by possession has priority over SP that perfects by filing

Question 1

What are the general priority rules?

Answer 1

First in time, first in right.

Unperfected v. Unperfected = first to attach
Perfected v. Unperfected = perfected SI
Perfected v. Perfected- first to file or perfect

Question 2

What are the special PMSI rules in priority?

Answer 2

If the PMSI is perfected when Debtor gets possession of the collateral; or within 20 days of Debtor receiving possession., then the PMSI gets “second in time, first in right”

EXCEPTION: Inventory as collateral- the SP must ALSO (1) notify the first secured party in an authenticated record that it expects to obtain a PMSI in the debtor’s collateral; and (2) the PMSI must be perfected at the time the debtor receives possession of the inventory (no grace period)

Question 3

Priority when it comes to lien creditors

Answer 3

SP has priority over a LC if SP:
perfects before the LC’s interest arises; or
files a financing statement and evidences a security agreement (by authentication, possession, or control) before the LC’s interest arises.

Special Rule for PMSI: PMSI takes priority over an intervening LC if the PMSI is perfected within 20 days of when Debtor receives the collateral.

Question 4

Define Accessions

Answer 4

Goods physically united with other goods but the identity of the original goods is not lost

Question 5

Priority rules for accessions

Answer 5

Ordinary rules of priority apply

**Except a SI in the accession is subordinate to a SI in the “whole” of the good if perfected pursuant to a certificate-of-title statute

Question 6

Define Commingled Goods

Answer 6

Goods so physically united with other goods that the identity of the original goods is lost

Question 7

Priority rules for commingled goods

Answer 7

Ordinary rules of priority apply

**Except for multiple SIs in commingled goods then each SI ranks equally in proportion to the value of the collateral at the time it became commingled goods

Question 8

General Rule: Does SI survive a sale?

Answer 8

Yes, SI survives a sale of the collateral

Question 9

What are the exceptions to SI surviving a sale?

Answer 9

1. SP authorized the sale free of SI
2. BIOCOB
3. consumer to consumer transaction

Question 10

What is the Buyer in the ordinary course of business exception (BIOCOB)?

Answer 10

SI does not survive a sale under this exception

A BIOCOB is a person who:
(1) buys in good faith;
(2) without knowledge of the SI;
(3) in the ordinary course of business; and
(4) from a person in the business of selling those goods

Question 11

What is the consumer to consumer transaction exception?

Answer 11

SI does not survive a sale under this exception.

Applies to goods bought for personal, family, or household use by someone who uses the goods for that purpose

A buyer takes free of an SI created by the seller if:
(1) buys for value;
(2) without knowledge of the SI; and
(3) before a financing statement is filed

Question 12

What are the priority rules for fixtures?

Answer 12

When collateral consists of a fixture, the creditor with a SI in the fixture wants
priority over the mortgagee; to do so, the creditor needs to file a fixture filing

“First in time, first in right” applies if the SP with an SI in the fixture files a fixture
filing —> mortgage has priority if recorded before the SP files a fixture filing

EXCEPTION: A PMSI in the fixture has super-priority (“second in time, first in right”) if the SI is perfected by a fixture filing: before becoming fixtures or within 20 days of the goods becoming fixtures.