Priority Flashcards
who wins in a priority issue between a secured creditor v. unsecured creditor
Secured creditor prevails
Note — beware of scenarios where someone signed a security agreement but has not given value or has no rights in the collateral
who wins in a priority issue between perfected SI v. unerperfected SI
perfected SI prevails
Applies even if perfected party takes interest with knowledge of earlier unperfected interest
who wins in a priority issue between perfected SI v. perfected SI
first to file finance statement OR perfect prevails
- When there are conflicting perfected SIs, priority goes to party that first filed or perfected (usually will be first to file)
- Where collateral is not subject to filing requirements (or cannot be filed), first to perfect obtains priority
- Knowledge of a prior unperfected SI will not prevent a prospective secured party from filing first to obtain priority
filing finance statement v. actually perfecting for priority purposes
If this doesn’t make sense lmk
- can file the financial statement before actually perfecting
- so even though perfection requires attachment, don’t have to complete attachment before filing the financial statement
- this means you should file financial statement ASAP because it gives you priority over someone who may have completed more of the perfection process than you
how do PMSI’s factor into priority
PMSIs give superpriority, meaning they are superior to prior perfected SIs in the same goods
how do PMSIs in inventory factor into priority
has priority over other SIs in the inventory or proceeds (instruments, chattel paper, identifiable cash proceeds) if:
- PMSI is perfected when debtor takes possession of inventory; and
- Other parties who filed their SIs in inventory receive authenticated notification of the PMSI before debtor takes possession of inventory
Note: Notification must state that PMSI will be taken in debtor’s inventory and describe kind and type of inventory
how do PMSIs in equipment factor into priority
has priority over other SIs in the same goods and their proceeds if PMSI is perfected before or within 20 days after debtor receives possession of the collateral
No requirement that secured party notify other SI holders
what is the impact of multiple PMSIs in the same collateral on priority
where there are multiple PMSIs in the same collateral, priority goes to:
- Secured party who has PMSI as the seller of the collateral (as opposed to lender), or
- Otherwise, first secured party to file or perfect
E.g., A takes $300 loan from bank to buy $500 TV, giving bank SI in TV, then A signs $200 credit agreement with TV store to complete purchase; store, as seller of collateral, has priority over bank as lender
how do priority in proceeds work
Perfected SIs in proceeds generally have the same date of priority as the SI in the original collateral that generated the proceeds
Proceeds from varying categories of collateral — where multiple SIs exist in proceeds, the type of collateral that generated the proceeds can determine priority
- Filing collateral — secured party would normally achieve priority by filing financing statement (e.g., goods, accounts, general intangibles)
- Non-filing collateral — secured party would normally achieve priority by possession or control, not filing (e.g., cash, chattel paper, negotiable documents, instruments)
what kind of situations lead to priority battles of buyers v. third party creditors and
Where a buyer purchases goods without knowledge that the sale of goods violates the rights of a secured creditor, buyer can take free of SI
Two situations where this arises —
- buyers vs. unperfected secured party and
- buyers in the ordinary course of business (“BIOC”) vs. a perfected secured party
who wins in a priority issue between a buyer v. unperfected secured party
buyer will prevail if, before collateral is perfected, he:
- Gives value and receives delivery; and
- Has no knowledge of the SI
who wins in a priority issue between a buyer and a perfected secured party (and what are the two exceptions)
generally perfected SI holder wins but buyer can prevail in two situations:
- BIOC exception
- PMSI in consumer goods
what is the BIOC exception to a situation where there is a priority issue between a buyer v. perfected secured party
BIOC exception — buyer prevails over nonpossessory perfected SI if:
- Buyer has no knowledge that the sale violates terms of seller’s security agreement; and
- Buyer is a BIOC (i.e., buyer is one who buys in the ordinary course of seller’s business and seller is in the business of selling goods of that kind)
what is the PMSI consumer goods exception to a situation where there is a priority issue between a buyer v. perfected secured party
PMSI in consumer goods — where buyer purchases consumer goods subject to a PMSI and sells the goods to another consumer, second buyer takes free of the SI if he buys:
- Without knowledge of the SI;
- For value; and
- Before financing statement covering the goods has been filed (i.e., this applies only to automatically perfected PMSIs in
consumer goods)
who wins in a priority issue between:
perfected secured party
v.
judicial lein creditor
prior perfected SI prevails
- If SI was perfected after judicial lien attached but secured party filed before lien attached, secured party also prevails
Future advances— if secured party makes future advances to debtor, secured party has priority over future advances if:
- Future advance was made before, or within 45 days, after lien arose, or
- Future advance was made without knowledge of the lien
