PRIORITY

Question 1

Unperfected Security Interests: Buyers

Answer 1

GR – buyer takes free of a SI covering the collateral if she both gives value and receives delivery of the collateral WITHOUT KNOWLEDGE of the SI BEFORE IT IS PERFECTED.

EXCEPTION: PMSI – 20 DAY GRACE PERIOD

Question 2

Unperfected Security Interests: iJudicial Lien Creditors

Answer 2

Prevail over holder of SI in collateral if JL creditor becomes such before the SI is perfected.

EXCEPTION: PMSI – 20 DAY GRACE PERIOD – A SP who attaches a PMSI in the debtor’s Collateral before a JL creditor acquires an interest in the collateral will have priority over the judicial lien creditor if she files within 20 days after the debtor receives collateral.

Question 3

Unperfected Security Interests: Unperfected secured creditors

Answer 3

First to attach

Question 4

Perfected Security Interest: Buyers

Answer 4

GR: a perfected SI in goods is enforceable against subsequent buyers.
1. BIOCOB: HOWEVER, if the buyer is a “buyer in the ordinary course of business (BIOCOB),” which is one who buys goods in the ordinary course of business from a seller who is engaged in selling goods of the kind purchased, they take free of the security interest, even if the buyer knows of it, UNLESS the buyer knows that it is a violation of the terms of the security agreement (security interest must be created by the buyer’s seller).

2. Garage Sale Rule: Moreover, under the garage sale rule, if a buyer of CONSUMER GOODS which is subject to a PMSI in turn resells them to another consumer (for purpose of personal, household, or family use), the second buyer takes free of the security interest if he buys without knowledge of it for value and before a financing statement covering the good is filed.

Question 5

Perfected Security Interest: Future advance

Answer 5

Relates back to time of perfection UNLESS (1) a buyer NOT in the ordinary course of business purchases the collateral, and (2) either the SP made an advance after they learned of purchase, OR (3) 45 days after purchase. (unless advance made pursuant to commitment made before they learned or before 45 days)

Question 6

Perfected Security Interest:

Answer 6

FIRST TO FILE OR PERFECT. Priority dates from the time a filing is first made covering the collateral, or the time the SI is first perfected – whichever is earlier – provided there is no period thereafter when there is neither filing nor perfection. A PMSI enjoys superpriority and arises when the seller (1) sells goods to D’or on credit and reserves a security interest in the goods OR (2) creditor advances funds used by D’or to purchase goods, with the former having priority if two PMSIs in the same good, or if same PMSI, first to file or perfect.

1. PMSI in consumer goods. Automatically perfected.
2. PMSI in Equipment. A PMSI in goods other than inventory & livestock has priority over conflicting SI in the same goods if interest is perfected within 20 days after D’or receives possession of the goods. (*Remember not PMSI in consumer goods) (Equipment or Farm products). Perfected by filing usually
3. PMSI in Inventory. Has priority over a conflicting SI in the same inventory or proceeds if: (1) it is perfected (by filing usually) at the time the D gets possession of the inventory (filing must take place prior to delivering to D); AND (2) any SP who has perfected his SI in the same inventory receives written notification of the PMSI before the D receives possession of the inventory, and the notification states that the purchase money party has or expects to take PMSI in inventory of the D described by kind or type. (similar to livestock!)

Question 7

Fixtures

Answer 7

A fixture is personal property that becomes so attached to real property with the intent that it becomes permanent part of the real estate. First party to file fixture filling or record its real property interest prevails.
i. A fixture filing must be made with ROD in county where property is located.
ii. It must reasonably identify the real estate in addition to the usual requirements.
iii. A security interest in a fixture has priority over any real estate interest that arises subsequent, but NOT prior to the perfection of the security interest by fixture filing. (if not a PMSI)
iv. Exception: PMSI in a fixture takes priority over a prior realty interest if perfected by a fixture filing before the goods become a fixture OR within 20 days thereafter.

EXCEPTION: Construction Mortgage takes priority over subsequent PMSI in a fixture if:
a. Mortgage recorded before goods became fixtures AND
b. Goods became a fixture before the completion of construction.
c. Step 1: Mortgage recorded; Step 2: Good becomes fixture; Step 3: Construction completed.

Question 8

Crops

Answer 8

A perfected SI in crops has priority over a conflicting interest in the real property on which the crops are growing, regardless of time of filing or perfection.

Question 9

Proceeds

Answer 9

Generally, a perfected interest in proceeds will have the same date of priority as the perfected security interest in the original collateral as long as the perfection of the security interest in the proceeds extends beyond the 20-day temporary perfection period.

i. Filing Collateral. Collateral in which a SP would normally acheieve priority by filing a financing statement.

ii. Non-Filing Collateral. Collateral in which a SP would noramally achieve priority by possession or control rather than filing (cash, chattel paper, deposit accounts, negotiable docs, instruments, and investment property.
1. A SP has priority in the proceeds of non-filing collateral if: (1) she has priority in the original collateral, (2) her SI is perfected, (3) proceeds are cash proceeds oro proceeds of the same type as the original collateral.
2. Original collateral is non-filing, perfected by way other than filing, and the proceeds of the original collateral are filing collateral, the first party to file a FS covering the proceeds has priority.