Priority Flashcards
State the general rule for priority
Rule: As between 2 conflicting secured, perfected creditors, the first in time to FILE or perfect prevails.
Secured creditor v. unsecured creditor
Secured creditor wins
Unperfected Creditor v. unperfected creditor
First to attach wins
Judicial/bankruptcy lien creditor v. unperfected creditor
LIEN CREDITOR WINS
Perfected creditor v. unperfected creditor
PERFECTED CREDITOR WINS
Perfected secured creditor v. perfected secured creditor
FIRST TO FILE OR FIRST TO PERFECT WINS
State the Bonafide Purchaser Issue Statement
The issue is whether the BFP takes free of the creditor’s PMSI in collateral.
State the Bonafide Purchaser Rule
Under UCC Article 9, a bonafide purchaser (of equipment) takes free of any UNperfected creditor if they:
(1) Give value
(2) Took delivery
(3) Without knowledge of the security interest
(4) Before it is perfected.
State the Buyer in the Ordinary Course of Business Rule
Under UCC Article 9, a buyer takes free of a security interest even if the creditor is perfected. A buyer in the ordinary course of business is one who buys goods:
(1) In good faith
(2) Without knowledge that the sale is violating the rights of another
(3) From a person who deals in goods of the kind.
State the Buyer in Consumer Goods Rule (3C buyer)
Under UCC Article 9, a buyer takes free of a security interest EVEN IF the creditor is PERFECTED so long as the buyer buys:
(1) Without knowledge of the security interest
(2) For value
(3) Is a consumer buyer, buying consumer goods, from a consumer debtor
(4) Before the filing of a financing statement.
State the General Proceeds Rule
Under UCC Article 9, a security interest in proceeds is perfected if the interest in the original collateral was perfected. A perfected security interest in proceeds becomes unperfected on the 21st day after attachment UNLESS the proceeds are identifiable cash proceeds or the same office rule is satisfied by:
(1) A filed financing statement that covers the original collateral
(2) The interest in proceeds can be perfected by filing in the same office as the original, and
(3) The proceeds are NOT purchased with cash proceeds.
State the Repossession Rule
A secured creditor can repossess the collateral on their own if doing so will not cause a breach of peace. A creditor can also repossess through judicial process. Notice of repossession is not required.
State the Resale Rule
After default, a secured party may sell, lease, license or otherwise dispose of any or all of the collateral if:
(1) It is in its present condition, or
(2) Following commercially reasonable preparation or processing, or
(3) Disposing of the collateral by public or private proceedings at any time, place, and on any terms.
A secured party that disposes of collateral must send an authenticated notification of disposition to the debtor.
A debtor and other parties must receive written notice of resale within a reasonable time before sale (generally at least 10 days before the sale).
State the Redemption Rule
A debtor or other secured party may redeem collateral by:
(1) Tendering payment for all of their obligations, AND
(2) Paying the reasonable expenses and attorney’s fees.
A redemption may occur at any time before a secured party disposes of collateral OR has accepted collateral in full or partial satisfaction of the obligation it secures.
State the Strict Foreclosure Rule
A secured party may accept collateral in full or partial satisfaction of the obligation it secures only if:
(1) The debtor consents, AND
(2) The secured party does NOT receive notice of objection within 20 days of receiving the proposal.
