Priority Flashcards
General Priority Rule
Conflicting perfected security interests rank according to priority in time of filing or perfection (always check to see who filed first
Perfected Security interest v. unperfected security interest
Perfected security interest has priority
Unperfected v. unperfected
first to attach has priority
P Security Party v. Lien Creditor
First in time has priority
UP Secured Party v. Lien Creditor
Lien Creditor has priority
Special Priority Rules for PMSI
See notes
Priority of invetment property
Investment property may be perfected by filing, but a secured party who perfects by control has priority
Priority of Deposit Accounts
(1) Secured party with control has priority over secured party without control
(2) Bank with which the account is maintained has priority over conflicting security interest
Fixture Def
Goods that have become so related to particular real property that an interest in them arises under real property law.
How to determine fixture status
(1) degree of annexation to realty
(2) appropriate the use or purpose of the realty to which it is connected
(3) intention of th eparty making annexation (generally given the most weight
What law governs fixtures
the law where the fixture is located
Perfection of Fixtures
The fixture filing must contain name of the debtor, secured party, and a description of the collateral, as well as, indication thatit covers fixtures, a statement that it will also be filed int he real property records, description fo the real property, and name of the record property owner.
-File at the office where there is a recording of the mortgage on the real property
Exception to Fixtures
A security interrest does not exist for ordinary building materials incorporated into an improvement.
Special Priority Rule for Goods other than inventory or livestock
Perfected PMSI has priority if perfected when the debtor receives possession of collateral or within 20 days
Special Priority Rule for inventory
Perfected PMSI has priority if perfected when the debtor receives possession of collateral, the purhcase money sends an authenticated notification to the holder of the conflicting security interest, the holder of conflicting security interest receives notification within 5 years (notice good for 5 years) before the debtor receives possession of the inventory, and the notice adequately describes the inventory.
Special Priority Rule for Livestock
Perfected PMSI has priority if perfected when the debtor receives possession of collateral, the purhcase money sends an authenticated notification to the holder of the conflicting security interest, the holder of conflicting security interest receives notification within 6 months (notice good for 6 months) before the debtor receives possession of the inventory, and the notice adequately describes the inventory.
Claims arising under Art 2
Upon rightful rejection of acceptance, a buyer has a security interest in goods in his possession and may resell them *only for amount paid + specific expenses)
-no need for attachment, but buyer must have possession or control
Seller’s right to reclamation
A seller may reclaim goods received by a buyer when insolvent if demand is made within 10 days after the buyer’s receipt of goods; if there is a written misrepresentation of solvency within 3 months before delivery, then 10-day limitation doesnt apply
Good Faith Purchaser for Value Elements (seller does not have to be a merchant)
A buyer, ohter than the secured party, of tangible chattel paper, documents, goods, instruments, or certificated securities, takes free of a security interest if the buyer:
(1) gives value
(2) receives delivery
-Buyer obtains title/ownership (physical possession is sufficient)
(3) without knowledge of the security interest
-without ACTUAL knowledge
(4) before it was perfected (watch for on exam)
Buyer in the Ordinary Course of Business
A BIOCB, other than the person buying farm products from a person engaged in farming operations, takes free of the security interest created by the buyer’s seller, even if a security interest is perfected and the buyer knows of its existence.
BIOCB Elements
(1) Seller Merchant
-someone in the business of selling goods of that kind
(2) created by the buyers seller
(3) buyer must take possession
-constructive likely enough
(4) Good faith
-no fraud or deceit
(5) without knowledge violates the rights of another
-buyer does not know the sale violated the SP’s rights
Proceeds Rule
A security interest also attaches to the proceeds from the disposition of the collateral
-cash and exchanged items…..collateral and proceeds from its disposition in the hands of a third party
Proceeds Priority
To have priority, a SP must also trace the proceeds
Tracing requirement
The SP has the burden to establish that something is a proceed of collateral by tracing
Methods of Tracing
(1) Pro Rata
(2) Intermediate Balance Rule
Pro Rata Tracing
-need accounting records that show when the SP delivered, when it was delivered, and who else delivered what then…then determine SP percentage
Intermediate Balance Tracing
The rule is implicated where proceeds from the disposition of the collateral are deposited into a bank account
Authorized Disposition
An authorized disposition means that a SP can still seek the proceeds, but not the collateral in the hands of the third party.
Chattel Paper Special Priority Rule
A purchaser has priority over a security interest in the chattel paper as proceeds if
(1) the purchaser gives new value
(2) the purchaser acts in good faith
(3)The purchaser has no actual knowledge, AND
-constructive knowledge not enough
(4) the purchaser takes possession or obtains control over the chattel paper
Art 9 Consignment Rule
To avoid a SP’s properly perfected security interest in the consignee’s inventory, the consignor has the burden of proof on all the following six elements:
(1) consignor deliver the good to a merchant
(2) not an auctioneer
(3) consignee/debtor is not generally known by its creditor to be selling the goods of another
(4) with respect to each delivery, the aggregate value of the goods is $1,000 or more
(5)) goods are not consumer goods
(6) no security agreement between consignor and consignee
–if all elements met, SP wins and gets the goods.
