4. Priority

Question 1

What are the general rules for secured parties against secured parties?

Answer 1

Perfected v Perfected - First to file/perfect wins

Perfected v Unperfected - Perfected wins

Unperfected v Unperfected - First to attach wins

Question 2

What are the special rules for secured parties against secured parties?

Answer 2

PMSR - Inventory/Livestock

• Perfection
• Authenticated notification to other holders
• Within 5 years before Debtor’s possession

PMSR - NOT inventory/livestock

• Perfection
• At the time/within 20 days after Debtor’s possession

Investment property
- First to perfect by control

Deposit Accounts

• First to put deposit account in own name
• Second is bank that maintains deposit account
• Third is holders with perfection by control

Chattel paper
- Give new value in good faith + take possession in ordinary course of business

Instruments
- Give new value in good faith + take possession with NO knowledge of violation of Secured Party’s rights

Question 3

What is the general rule for secured parties against buyer of collateral? Are there exceptions?

Answer 3

Buyer is NOT free of security interest on collateral

UNLESS

Authorised sale => Buyer is free

Unauthorised sale + Ordinary course of business (good faith purchase) => Buyer is free

NOT ordinary course of business =>

• Buyer is free (of unperfected security interest)
• Buyer is NOT free (of perfected security interest)

Consumer-to-consumer sales + Ordinary course of business + for value + personal/household purpose => Buyer is free
- UNLESS Secured Party filed financing statement before purchase => Buyer NOT free

Question 4

What are the general rules for secured parties against judgment lien creditor?

Answer 4

If X becomes lien creditor first => Lien Creditor wins

If Secured Party perfects first (Within 20 days) => Secured Party wins

If Secured Party has future advance clause => Secured Party wins

• NO knowledge of lien
• Within 45 days of lien

Question 5

What are the general rules for secured parties against statutory lien creditor?

Answer 5

If ordinary course of business + collateral remains in Lien Creditor’s possession => Statutory Lien Creditor wins