Priority Flashcards
Priority Between Perfected Secured Parties
When there are conflicting perfected security interests in the same collateral, priority goes to whichever party was the first to either file or perfect—whichever is earlier
Priority Between Unperfected Secured Parties
When two unperfected security interests conflict, the first to attach has priority.
Priority Between Unperfected and Perfected
Secured Parties
A perfected security interest generally prevails over an unperfected security interest.
PMSI in Goods Other than Inventory and Livestock
A PMSI in goods other than inventory and livestock (for example, equipment) has priority over conflicting security 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
PMSI in Inventory and Livestock
A PMSI in inventory collateral has priority over a conflicting security interest in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if:
* It is perfected at the time the debtor gets possession of the inventory (filing must take place before the inventory is delivered to the debtor), and
* Any secured party who has filed their security interest in the same inventory receives authenticated
Conflicting PMSIs
If more than one party has PMSI superpriority in collateral, the following rules apply:
* A secured party who has a PMSI in collateral as a seller (a seller-financed PMSI) has priority over a secured party who has a PMSI in the same collateral as a lender (a financer-financed PMSI)
* Otherwise, the first secured party to file or perfect prevails
Key Notes
A PMSI in consumer goods is automatically perfected,
* A PMSI in equipment can be perfected (usually by filing) any time within 20 days after the debtor gets possession of the collateral, and
* A PMSI in inventory must be perfected (usually by filing) by the time the debtor gets possession of the collateral—there is no 20-day grace period—and others with a previously filed security interest in the inventory must be given notice
Special Priority Rules for Conflicting Security
Interests in Investment Property
A security interest perfected by control has priority over a security interest perfected by any other method (that is, by filing or automatic perfection). For conflicting security interests perfected by control, they rank according to the time of obtaining control (unless one of the secured parties with control is a securities intermediary, in which case the securities intermediary will prevail). In all other cases, the “first to file or perfect” rule governs priority questions for investment property.
Special Priority Rules for Conflicting Security
Interests in Deposit Accounts
A security interest in a deposit account that is perfected by control has priority over a conflicting security interest that is perfected by another method (namely, as proceeds of other collateral). If there are
conflicting security interests that are perfected by control, they rank according to the time of obtaining control, subject to the following exceptions:
* A secured party who has obtained control by putting the deposit account in the party’s name has priority over all other secured parties with control, and
* A bank that has control because it maintains the deposit account has priority over all secured parties with control, other than the party who has obtained control by putting the account in their name. Note: If a debtor transfers money or deposit account funds (for
example, by writing a check or making an electronic funds transfer) to a person, that person takes free of any security interest in the money or funds, unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
General Rule—Buyers in the Ordinary Course
A buyer in the ordinary course of business (“BIOC”) takes free of a nonpossessory security interest in the goods created by the buyer’s seller, even though the security interest is perfected and even though the buyer knows of the security interest.
Definition of “Buyer in the Ordinary Course”
A “buyer in the ordinary course” is one who buys goods (1) in good faith, (2) without knowledge that the sale violates the rights of another person in the goods, and (3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased.
Buyers Not in the Ordinary Course of Business
Buyers or lessees not in the ordinary course of business:
* Take subject to perfected security interests, and
* Take free from unperfected security interests unless they know of the security interest when they give value or take delivery
Exception—PMSI Grace Period
If a secured party attaches a PMSI in the debtor’s collateral before the buyer or lessee without knowledge pays value and receives delivery, the secured party will have priority over the buyer or lessee if the secured party files within 20 days after
the debtor receives the collateral.
Consumer-to-Consumer Sales
In the case of consumer goods, a buyer takes free of a security interest, even though it’s perfected, if the buyer buys (1) without knowledge of the security interest, (2) for value, (3) for the buyer’s own personal, family, or household purposes, and (4) before a
financing statement covering the goods has been filed. Note that the goods must be consumer goods in the hands of both the buyer and the seller.
Secured Party vs. Judicial Lien Creditor
A judicial lien creditor (that is, a person who has acquired a lien on the collateral through judicial attachment, levy, or the like, or a bankruptcy trustee) prevails over the holder of a security interest in collateral if the lien creditor becomes such before the security interest is perfected. On the other hand, a prior perfected security interest has priority over a judicial lien.
