Priority Flashcards
Secured party vs. general creditor
A secured party will always prevail over a general creditor.
A general creditor is one who has a claim, including a judgment, but who has no lien or security interest with respect to the property in question (i.e., the collateral).
Secured party vs. judicial lien creditor
A perfected security interest has priority over a judicial lien creditor.
A judicial lien creditor has priority over an unperfected security interest—unless the only reason the interest was not perfected was because the secured party had not yet given value.
Transferee vs. secured party
If the collateral is transferred, the security interest continues in the collateral unless the secured party has authorized the transfer free of the security interest.
Buyer vs. secured party
The following applies to applies to goods, tangible chattel paper, tangible documents, or a security certificate.
(1) If the security interest is perfected:
The buyer takes subject to the security interest unless the secured party has authorized sale of the collateral free of the security interest.
(2) If the security interest is not perfected:
The buyer takes free of the security interest if she:
- gives value and
- receives delivery of the collateral
- without knowledge of the existing security interest.
Buyer in the ordinary course of business
A buyer in the ordinary course of business takes free of a security interest that the seller gave in the goods, even if:
- the security interest is perfected; and
- the buyer knows of its existence,
if the buyer gives new value and:
(1) Purchases goods that are not farm products;
(2) In the ordinary course of business;
(3) From a merchant who is in the business of selling goods of that kind;
(4) In good faith; and
(5) Without knowledge that the sale violates the rights of another in the same goods—i.e., more than mere notice or reason to know.
A subsequent buyer from a BOCB also takes free of that security interest.
Consumer buyer
A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless the secured party filed a financing statement covering the goods.
A consumer buyer:
- buys consumer goods for value
- for his own personal, family, or household use
- from a consumer seller
- without knowledge of the security interest.
Because of the consumer buyer rule, holders of PMSIs in consumer goods may file a financing statement even though they do not need to do so to perfect.
Perfected security interest vs. perfected security interest
The first either to file a financial statement or perfect has priority.
I.e., if a secured party files first without attaching but subsequently perfects by attaching, it defeats a secured party who perfected first but filed second.
Secured parties without perfected security interests
A perfected interest takes priority over an unperfected one.
If neither interest is perfected, the first party to attach has priority.
PMSI vs. non-PMSI: consumer goods or equipment
Such a PMSI prevails over all other security interests in the collateral so long as it is perfected before or within 20 days after the debtor receives possession of the collateral.
PMSI vs. PMSI
If there are two or more PMSIs, the first party to either file a financial statement or perfect has priority.
Priority of a PMSI in good for proceeds
The priority generally extends to identifiable proceeds of the original collateral—but only as to proceeds in which the security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
PMSI vs. non-PMSI: inventory or livestock
A PMSI in inventory or livestock prevails over all other security interests in the collateral if:
(1) The PMSI is perfected by the time the debtor receives possession of the collateral; and
(2) The purchase-money secured party:
* sends an authenticated notification of the PMSI to the holder of any conflicting security interest * before the debtor receives possession of the collateral.
The notification must state the PMS party has or expects to have a PMSI in the debtor’s inventory or livestock.
It must include a description of the collateral.
