priority of security interests Flashcards
Priority of security interests
- two secured creditors might both have loans secured by the same collateral
- if borrower defaults on both loans, the party with highest priority security interest gets first dibs on the collateral
priority between parties
- perfected v. unperfected SI – perfected SI wins
- perfected v. perfected SI - first to file or perfect wins
- unperfected SI v. unperfected SI - first to attach wins
it’s the DATE OF FILING or PERFECTION that determines priority (NOT date of attachment)
priority in PMSIs
- they are superpriorities – they’re superior to prior perfected SIs in same collateral
PMSI in inventory
- has priority over other SIs in the inventory or certain proceeds if:
1. PMSI is perfected when debtor takes inventory; and
2. other parties who filed their SIs in inventory get authenticated notification of PMSI before debtor takes possession of inventory
PMSI in goods other than inventory and livestock
has priority over other SIs in the same goods or their proceeds if PMSI is perfected before/within 20 days after debtor gets possession of collateral
conflicting PMSIs
where there are multiple PMSIs in same collateral, priority goes to:
- secured party who has PMSI as selller of collateral (as opposed to lender), or
- otherwise, first secured party to file or perfect
example:
A takes $300 loan from bank to buy $500 TV, giving bank SI in TV
A then signs $200 credit agreement with TV store to complete purchase
store, as seller of collateral, has priority over bank as lender
priority in the proceeds
Perfected SIs in proceeds generally have the same date of priority as the SI in the original collateral that generated the proceeds
security interest in fixtures
- fixtures are goods attached to real property
- priority - first to file or record wins
***where a SI in fixtures competes against interest in real property containing the fixture, the first party to file a fixture filing or record its real property interest prevails
EXCEPTION: PMSIs (PMSI secured parties who make a fixture filing within 20 days of affixation win over real prop interest recorded before affixation)
fixture filing
filing a financing statement where the mortgage on the real property would be recorded
accessions
collateral that doesn’t lose its identity when physically united with other goods
priority of buyers v. 3rd party creditors
- when a buyer buys goods without knowing that sale of goods violates rights of a secured creditor, buyer can take free of secured interest
buyer v. unperfected secured party
- buyer will prevail if (before collateral is perfeted) he: (1) gives value and gets dleivery AND (2) has no knowledge of the SI
buyer v. PERFECTED secured party
perfected SI prevails
exception: buyer prevails over nonpossessory perfeted security interest if
1. buyer has no knowledge that sale violates terms of seller’s secuirty agreement; and
2. buyer is one who buys in the ordinary course of business from seller
e.g., if a store gets a loan from a bank and gives bank a security interest in its inventory of fridges, and you buy a fridge from the store, the bank loses its security interest b/c you’re a buyer in ordinary course of business
buyer v. perfected secured party continued
where buyer purchase consumer goods subject to a PMSI and sells goods to another consumer, second buyer takes FREE OF secured interest if he buys:
1. without knowledge of the secured interest;
2. for value; and
3. before financing statement covering goods has been filed
secured parties v. judicial lien creditors
- judicial lien creditors are those who acquire a lien on collateral through judicial attachment (court grants a creditor an interest in debtor’s property after court judgment; creditor becomes a judicial lien creditor at the time sheriff seizes the collateral)
