Priority of Security Interests

Question 1

Attached vs. Unattached/Unsecured Interest

Answer 1

attached SI prevails

Question 2

Perfected vs. Unperfected SI

Answer 2

perfected SI prevails

*applies even if Perfected Party takes interest with knowledge of an earlier unperfected interest

Question 3

Perfected vs. Perfected

Answer 3

First to file or perfect prevails

Question 4

PMSIs are ___________, which means that they are ______________________.

Answer 4

Super-Priorities; superior to prior perfected SIs in the same goods

*General Rule; subject to limitations and conditions

Question 5

PMSI in Inventory

Answer 5

Has priority over other SIs in the inventory (or proceeds from inventory) if:

(1) PMSI is perfected when debtor takes possession of the inventory; and
(2) Other parties who filed their SIs in inventory receive authenticated notification of the PMSI before debtor takes possession of the inventory

Question 6

PMSI in Goods (non-inventory or livestock)

Answer 6

has priority over other SIs in the same goods (and their proceeds) if PMSI is perfected before or within 20 days after debtor receives possession

*no notice requirement

Question 7

What happens when there are multiple PMSIs in the same collateral?

Answer 7

(i) the SP who has PMSI as the seller of the collateral

(ii) first party to file or perfect

Question 8

What is the date of priority in proceeds?

Answer 8

the same date of priority as the SI in the original collateral that generated the proceeds

Question 9

What is a fixture?

Answer 9

goods that become attached to real property, such that an interest in them arises under real property

Question 10

What happens when a SI in fixture(s) competes against an interest in real property?

Answer 10

the first to file a fixture filing or record its real property interest will prevail

Question 11

Explain the PMSI exception to the fixtures priority rule

Answer 11

PMSI secured parties who make a fixture filing within 20 days of affixation prevail over a real property interest recorded prior to affixation

Question 12

Who has priority in crops?

Answer 12

a PSI in crops has priority over an interest in the land on which they are planted, regardless of time of filing or perfection

Question 13

In what two situations can a buyer of goods have priority over a SI holder?

Answer 13

Buyers vs. Unperfected SI

BIOC vs. Perfected SI

Question 14

When will a buyer prevail against an unperfected secured party?

Answer 14

When, before collateral is perfected, buyer:

• gives value and receives delivery; and
• has no knowledge of the SI

Question 15

Who is a buyer-in-the-ordinary-course-of-business (BIOC)?

Answer 15

• buyer buys in the ordinary course of business

- seller is in the regular business of selling goods of that kind

Question 16

When will a buyer prevail against a perfected security interest?

Answer 16

Generally, they won’t. However, they will if the BIOC exception is met.

Question 17

When is the BIOC exception: (i) implicated and (ii) satisfied?

Answer 17

(i) buyer vs. psi
(ii) When:
- perfected security interest is non-possessory
- buyer has no knowledge that the sale violates terms of seller’s SA
- buyer is a BIOC

Question 18

When does buyer prevail when a buyer buys collateral in which creditor holds a PMSI in consumer goods?

Answer 18

Buyer prevails if buyer:

• consumer purchasing for personal, household use
• buys without knowledge of the SI
• pays value
• no FS covering the goods has been filed

Question 19

Who prevails if:

PSI vs. Judicial Lien Creditor

Answer 19

JLC will only prevail if they become JLCs before a secured party files or perfects

Question 20

Who prevails if:

USI vs. JLC

Answer 20

JLC prevails unless the PMSI grace period exception applies*

*SP who attaches a PMSI in collateral before JLC acquires an interest in collateral has priority if it files within 20 days after debtor receives the collateral