Priority

Question 1

Priority defined

Answer 1

Where a secured party and a third party are claiming the same collateral.

Question 2

Secured party vs. Secured party

Answer 2

The first to file or perfect has priority.

Question 3

B/w two unperfected secured creditors

Answer 3

First to attach has priority.

Question 4

Special rule: Purchase money security interest (PMSI) in goods other than inventory or livestock

Answer 4

PMSI has priority over conflicts if PMSI is perfected at the time debtor received collateral or w/i 20 days thereafter.

Question 5

PMSI in inventory or livestock

Answer 5

PMSI has priority over conflicting security interest in same inventory/livestock, if before debtor receives possession, secured party:

1. Perfects; and
2. Sends authenticated notice to holders of previous filed conflicting security interest (must receive w/i 5 years before debtor takes possession)

Question 6

Conflicting PMSI

Answer 6

Seller financed PMSI has priority over Financer financed PMSI.

Question 7

Special priority rules for investment property

Answer 7

A security interest perfected by control has priority over one perfected by any other method.
If both perfected by control, rank according to the time of obtaining control.

Question 8

Special priority rules for deposit accounts

Answer 8

A security interest perfected by control has priority over one perfected via proceeds.

Question 9

Purchaser of chattel paper

Answer 9

If purchaser of chattel paper, in good faith, gives new value and takes possession, they have priority over:

1. Security interest arising from proceeds of inventory
2. Any other security interest in the paper, as long as purchased in good faith

Question 10

Purchaser of instruments

Answer 10

Has priority over a perfected security interest if purchaser gave value and took possession in good faith and w/o knowledge of another secured party

Question 11

Buyer in ordinary course

Answer 11

Someone who buys goods in good faith, w/o knowledge that the sale violates another person’s rights, and from a person in the ordinary course of selling goods of that kind.

Question 12

Secured party vs. Buyer of the collateral

Answer 12

If you buy something with a security interest on it, security interest stays on it.

Exceptions:
1. Authorized sale
(if sale is authorized by security party free of the security interest, the buyer takes free of the security interest) May be express or implied.

2. Unauthorized sales: Buyer in ordinary course (other than farm products from a farmer) takes free of a security interest created by his seller, even though the security interest is perfected and buyer knows of its existence.

Question 13

Consumer to consumer sales

Answer 13

Buyer takes free of a security interest even though it is perfected, if he buys w/o knowledge of the security interest, for value, for his own personal/family/household purposes
UNLESS
prior to purchase a financing statement was filed covering the goods

Question 14

Secured party vs. judgment lien holders

Answer 14

If security interest is perfected before someone becomes a lien holder, interest has priority.

If a judgment lien is levied before perfection, lien has priority

Question 15

Lien holder

Answer 15

An unsecured creditor who has obtained a judgment against debtor and has levied on that judgment

Question 16

PMSI vs. Lien creditor

Answer 16

If secured party files with PMSI files w/i 20 days after debtor obtains possession of collateral, PMSI takes priority.

Question 17

Future Advances priority

Answer 17

Future advance by secured creditor has priority over a lien creditor if future advance is made:

1. w/o knowledge of lien.
   - or-
2. w/i 45 days of lien arising
   - or-
3. pursuant to a commitment entered into w/o knowledge of the lien

Question 18

Secured party vs. statutory lien claimants

Answer 18

Statutory lien wins even against a perfected security interest. (e.g. a mechanics lien)