rules of priority Flashcards
perfected secured party vs. perfected secured party
first to either file or perfect has priority
unperfected secured party vs. unperfected secured party
first to attach has priority
perfected secured party vs. unperfected secured party
perfected party has priority
PMSI super priority rules for “PMSI secured party vs. secured party”
PMSIs are superior to prior perfected security interests in the same collateral if certain conditions are met:
(1) PMSI in equipment [NOT inventory and livestock; PMSI in consumer goods is automatically perfected]
Priority over other security interests in the same goods or their proceeds if the interest is perfected before or within 20 days after debtor receives possession of the goods
(2) PMSI in inventory and livestock
priority over other security interests in the same inventory or proceeds that are chattel paper, instruments or cash IF:
(a) perfected at time debtor gets possession [filing happens before inventory is delivered to debtor]
AND
[b] any secured party who has filed their sec interest receives authenticated notification of the PMSI before debtor receives possession of the inventory and the notification states that the party has or expects to take a PMSI in the inventory
PMSI secured party vs. PMSI secured party
First secured party to file or perfect prevails
Seller-financed PMSI > financier-financed PMSI
Secured party vs. buyer or other transferee
GENERAL RULES IS THAT WHEN BUYER OR LESSEE BUYS OR LEASES SOMETHING WITH A SECURITY INTEREST ON IT, THE SECURITY INTEREST REMAINS ON THE ITEM
EXCEPTIONS:
(1) Authorized sales
– when secured party authorizes the sale free of the security interest, transferee takes free of it
– there is implied authorization to sell inventory to an ordinary customer free of the security interest when sale is not expressly prohibited in the security agreement. [i.e. sec agreement is silent]
– implied authorization by acquiescence
(2) Unauthorized sales when buyer is in the ordinary course (BIOC)
– BIOC taks free of a nonpossessory security interest in goods created by the buyer’s seller, even though sec. interest is perfected and even when buyer knows of sec. interest [also applies to lessees of goods]
(3) unauthorized sale where buyer or lessee is NOT in the ordinary course
– takes subject to perfected sec interest
– takes FREE of unperfected sec interest unless they know of it when they give value or take delivery
(4) consumer-to-consumer sales [goods are consumer goods in hands of both buyer and sellers]
– buyer takes free of sec interest even though it is perfected if buyer buys
(a) without knowledge of it
(b) for value
(c) for buyer’s personal, family or household purposes
and
(d) before financing statement has been filed
secured party vs. holder in due course
holder in due course of a negotiable instrument has priority over a security interest in the negotiable instrument
what is buyer in the ordinary course
buyer who buys goods …
(1) in good faith
(2) without knowledge that the sale violates the rights of another person in the goods
[but can know that someone else has a sec. int. in the item]
(3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased
what is a judicial lien creditor
creditor who has acquired a lien on collateral through judicial attachment, levy, etc. or a bankruptcy trustee
becomes judicial lien creditor at time of levy
secured party vs. judicial lien creditor
judicial lien creditor WINS over secured party IF:
—– the lien creditor becomes such BEFORE the security interest is perfected
-
Secured party wins over judicial lien creditor IF:
—— security interest was perfected prior to creation of judicial lien [created at time of time of levy]
OR
——- secured party obtained security agreement AND filed a financing statement before the judicial lien arose [as long as sec. party eventually attaches and perfects]
EXCEPTION:
For a perfected future advance to gain priority over a subsequent judicial lien, the future advance must be made (a) without knowledge of the lien
(b) within 45 days of the lien arising
or
(3) pursuant to a commitment entered into without knowledge of the lien
SPECIAL PMSI RULE – GRACE PERIOD:
——– PMSI secured party who files financing statement w/r to the PMSI within 20 days after debtor takes possession will take priority over a judicial lien creditor whose interest arises between the time the security interest attaches and the time of filing
secured party vs. statutory lien holder [mechanic’s lien]
state statutory lien-holder who supplies goods and services has priority over a security interest as long as
(a) the goods or services were provided in the ordinary course of business
AND
(b) the collateral remains in the lien holder’s possession
