Priority Flashcards
What is priority?
We are dealing with a situation where the secured party and some third party are claiming the SAME collateral.
Who are these third parties?
May be another secured party, a purchaser of the collateral, or a creditor who has obtained a judgment against the debtor.
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 _____________ has priority.
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Perfected v. unperfected
perfected wins.
If purchase money security interest in goods other than inventory or livestock:
a PMSI in such goods has priority over a conflicting security interest in the same goods or its proceeds if the purchase money security interest is perfect at the time the debtor rec’d possession of the collateral or within 20 days thereafter.
PMSI in inventory or livestock:
a PMSI in inventory or livestock has priority over a conflicting security interest in the same inventory or livestock (as well as proceeds that are chattel paper, instruments and identifiable cash proceeds) if, before the debtor receives possession of the inventory or livestock, the secured party (1) perfects, and (2) sends an authenticated notification to holds of previously filed conflicting security interests in the collateral.
The holder of the conflicting security interest must receive this notice wtihin 5 years before the debtor receives possession of the inventory (i.e. the notification is effective for deliveries of the same type of collateral for 5 years).
Conflicting purchase money security interests
a seller PMSI has priority over a financer (financed) PSMI
Special priority rules for investment property
a security interest perfected by control has priority over a security interest perfected by any other method (filing or automatic)
if conflicting security interests each were perfected by control, they rank according to the time of obtaining control.
a security interest granted to a debtor’s intermediary has priority over a security interest granted by the debtor to another secured party (unless the intermediary agrees otherwise).
excepted as provided in above, the first to file or perfect rule governs priority questions.
Special priority rules for deposit accounts
a security interest perfected by control has priority over a security interest perfected via proceeds.
if conflicting interests each were perfected by control, they rank according to the time of obtaining control.
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.
a bank that has control bc 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 buyer v. buyer of the collateral
If you buy something with a security interest on it, the security interest stays on it.
Exceptions:
authorized sales - if sale is authorized by the secured party free of the security interest, the buyer takes free of the security interest.
unauthorized sales - a buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations) takes free of a security interest created by his seller even though the security interest is perfected and event hough the buyer knows of its existence.
What is a buyer in ordinary course?
person who buys goods in good faith, without knowledge that the sale violates the rights of another person (usually the secured party) 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
Special rule re consumer to consumer sales:
a buyer takes free of a security interest even though it is perfect 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.
an unsecured creditor who has obtained a judgment and has levied on that judgment is a “lien creditor”
