Priority Rules

Question 1

Perfected Secured Creditor

vs.

Perfected Secured Creditor

Answer 1

General Rule: The first to file OR perfect, whichever occurs first, has priority.

• Priority is NOT affected by knowledge of another’s interest in collateral at time of filing/perfection.

Question 2

Unperfected Secured Creditor

vs.

Unperfected Secured Creditor

Answer 2

The first to ATTACH has priority.

Question 3

SPECIAL PRIORITY RULES for

Secured Creditor vs. Secured Creditor

PMSI in Goods Other Than Inventory/Livestock

Answer 3

1. PMSI in goods other than inventory or livestock: A PMSI in such goods has priority over conflicting security interests in the same goods or its proceeds if the PMSI is perfected at the time the debtor received possession of the collateral or w/in 20 days.

Question 4

Perfected Secured Creditor

vs.

Unperfected Secured Creditor

Answer 4

Perfected secured creditor prevails!

Question 5

SPECIAL PRIORITY RULES for

Secured Creditor vs. Secured Creditor

PMSI in Inventory or Livestock

Answer 5

A PMSI in inventory or livestock has priority over a conflicting security interest (as well as proceeds that are chattel paper, instruments, and identifiable cash proceeds) if, BEFORE the debtor receives possession of the inventory or livestock, the PMSI holder

1. perfects and
2. sends authenticated notification to holders of previously filed conflicting security interests.

Holder of conflicting security interest must receive notice w/in 5 years before debtor receives possession of the inventory.

Question 6

Special Priority Rule

Secured Creditor vs. Secured Creditor

Conflicting PMSIs

Answer 6

where Debtor gets financing from outside party AND from seller party, to purchase single item of collateral -

**Rule: **the SELLER PMSI has priority over financer PMSI.

Question 7

Special Priority Rule

Secured Creditor vs. Secured Creditor

Investment Property Exceptions General Rule

Answer 7

1. A SI perfected by control over investment property has priority over a security interest perfected by another method.
2. If conflicting SIs each perfected by control, they rank according to time of obtaining control.
3. A security interest granted to a debtor’s intermediary has priority over SI granted by debtor to another.

Question 8

Special Priority Rules

Secured vs. Secured

Deposit Accounts

Answer 8

1. Security Interest perfected by control of nonconsumer deposit account has priority over SI perfected via proceeds (i.e. interest in proceeds, which ended up in the bank acct)
2. If conflicting interests each perfected by control, rank according to first to obtain control.
3. If obtained control by putting deposit account in his own name, PRIORITY over all others with control
4. If control b/c maintain deposit accounts, has priority over others with control except those with name on account (i.e. #3 above).

Question 9

Special Priority Rules

Secured vs. Secured

Purchaser of Chattel Paper

Purchaser of Instrument

Answer 9

If good faith chattel paper purchaser gives new value and takes possession in the ordinary course of business (or takes control of electronic), has PRIORITY OVER:

1. SI in chattel paper that arises as proceeds of inventory and
2. any other security interst in the chattel paper, as long as GF purchaser acquired interst w/o knowledge of violation of rights of secured party.

Instrument Purchaser hsa priority over other SI in the instrument if gives value and takes possession in GF and w/o knowledge of rights violated

Question 10

Secured Party vs. Buyer of the Collateral

Authorized Sales

Answer 10

General Rule: When buy item with Security Interest on it, the Security interest remains. BUT

• If sale is authorized by secured party, the buyer takes free of the security interest. (Authorization may be express or implied from type of sale or seller’s conduct)
  
  • When Collateral is Inventory, most courts hold implied authorization and buyer takes free of SI.
  • When secured party has repeatedly authorized sales, courts imply authorization for additional sales.

Question 11

Secured Party vs. Buyer

Unauthorized Sales

Answer 11

General Rule: A buyer in the ordinary course of business takes free of a SI created by his seller, even though the SI is perfected and buyer knows of its existence.

Buyer NOT in the ordinary course of business take subject to perfected security interests but free from unperfected, unless they know of unperfected SI.

Consumer to Consumer (Garage) Sale: buyer takes free of SI even if perfected if he 1) pays value, 2) buys w/o knowledge of the SI, and 4) for his own personal/family use, UNLESS secured party had a FS before the garage sale.

Question 12

“Buyer in the Ordinary Course of Business”

Answer 12

A buyer who buys goods

1. in GOOD FAITH,
2. w/o knowledge that the sale violates the rights of another person (usually sec’ed pty), (can know of existence of Security Interst, just not that sale violates rights) and
3. in the ordinary course from a person in the business of selling goods of that kind.

Question 13

Secured Party vs. Judgment Lien Holders

Answer 13

• KEY - time of perfection of SI vs. time of levy by sheriff
• Unperfected SI is subordinate to rights of lien creditor
• If SI perfected before person becomes a lien creditory, the SI has priority.
• “Lien Creditor” = an unsecured creditor who has obtained a judgment and has levied that judgment.

Question 14

*PMSI vs. Lien Creditor

Answer 14

If the secured party files a PMSI within 20 days after debtor receives possession of the collateral, PMSI takes priority over the rights of a lien creditor which arises b/w time SI attaches and time of filing.

Question 15

Priority for Future Advances

Answer 15

A future advance by a secured creditor has priority over a lien creditor if the future advance is made (1) w/o knowledge of the lien OR (2) w/in 45 days of the lien arising, OR (3) pursuant to a commitment entered into w/o knowledge of the lien.

Question 16

*Secured Party vs. Statutory Lien Claimants

Answer 16

Statutory Lien has priority over even a perfected security interest.