Priority Flashcards
Priority
Rules for determining which creditor (secured, unsecured, lien, judgment) is entitled to first satisfy its claim out of the collateral
Secured Party v. Secured Party
General Rule: As between two perfected secured creditors, the first to file OR perfect, whichever occurs first, has priority.
As between two unperfected secured creditors, the first to attach has priority
Special Priority Rules for Investment Property
A security interest perfected by control has priority over a security interest perfected by any other method.
If conflicting security interests each were perfected by control, they rank according to the time of obtaining control.
Special Priority Rules for Deposit Accounts
1) A security interest perfected by control has priority over a security interest perfected via proceeds.
2) A secured party who has obtained control by putting the deposit account in its own name has priority over all other secured parties with control.
3) A bank that has control because it maintains the deposit account has priority over all other secured parties with control except a secured party who has obtained control by putting the deposit account in his name
Secured Party v. Buyer of the Collateral
General Rule: If you buy something with a security interest on it, the security interest stays on it. Exceptions:
1) Authorized sales
2) Unauthorized Sales
Authorized Sales
If the sale is authorized by the secured party free of the security interest, the buyer takes free of the security interest. Authorization may be express or implied from the type of sale or from seller’s conduct.
There is an implied authorization for inventory sold to an ordinary consumer.
Unauthorized Sales
General Rule: 1) a buyer in the ordinary course of business takes free of a security interest 2) created by his seller even though the security interest is perfected and even though the buyer knows of its existence.
What is a buyer in the ordinary course of business?
A person who buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person in the business of selling goods of that kind.
Buyers not in the ordinary course of business . . .
take subject to perfected security interests. They take free from unperfected security interest unless they know of the security interest.
Special rule: consumer to consumer sales
In the case of consumer goods, a buyer takes free of a security interest even though it is perfected if he buys without knowledge of the security interest, for value, and for his own personal, family, or household purposes, unless prior to the purchase the secured party has filed a financing statement covering such goods.
Secured Party v. Judgment Lien Holders
An unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected. If the security interest is perfected before the person becomes a lien creditor, the security interest has priority.
Lien creditor
A creditor who has acquired a lien on the property involved by attachment, levy or the like.
If the security interest is perfected before the sheriff levies, the security interest has priority. If the levy precedes perfection of the security interest, the judicial lien has priority.
Priority for Future Advances
A future advance by a secured creditor has priority over a lien creditor if the future advance is made 1) without knowledge of the lien, OR 2) within 45 days of the lien arising, OR 3) pursuant to a commitment entered into without knowledge of the lien.
Secured party v. Statutory lien claimants
Statutory lien claimants (created by state statutes that grant lien in property - like mechanics liens) beat even a perfected secured creditor
