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Themis Secured Transactions - July 2025 (MEE) > Ch 4: Priorities > Flashcards

Ch 4: Priorities Flashcards

(92 cards)

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1
Q

What does Article 9 govern?

A

Rules governing the priorities of conflicting interests in collateral

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2
Q

How does Article 9 differ from bankruptcy regarding creditor claims?

A

Article 9 prioritizes claims and pays them in order, whereas bankruptcy provides a pro rata share to all creditors

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3
Q

What are the two steps to determine priority in collateral claims?

A
  • Identify the status of each claimant
  • Apply the appropriate priority rule
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4
Q

What are the three groups of claimants with interests that may conflict with a secured party’s interest?

A
  • Creditors
  • Transferees or buyers
  • Other secured parties
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5
Q

Define a general creditor.

A

A creditor who has a claim but no lien or security interest regarding the collateral

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6
Q

What is the priority status of a general creditor compared to a secured party?

A

A secured party will always prevail over a general creditor with respect to the debtor’s collateral

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7
Q

Define a judicial lien creditor.

A

A creditor who acquires a lien on the collateral by a judicial process

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8
Q

What happens if a judicial lien creditor’s lien comes into existence while a security interest is unperfected?

A

The judicial lien creditor generally has priority over an unperfected security interest

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9
Q

What is the PMSI exception regarding judicial lien creditors?

A

If the secured party has a PMSI perfected before or within 20 days after the debtor receives possession, it takes priority

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10
Q

What is the rule for advances in relation to lien creditors?

A

A security interest securing an advance is subordinate to a lien if the advance is made more than 45 days after the lien creditor becomes a lien creditor

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11
Q

Define a statutory or common-law lien creditor.

A

A creditor who obtains a possessory lien on property by operation of a statute or common-law rule

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12
Q

What conditions must be met for a statutory or common-law lien to have priority?

A
  • The effectiveness of the lien depends on possession of the goods
  • The lien secures payment or performance of an obligation for services or materials furnished
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13
Q

Who are transferees of collateral?

A

Persons who obtain full title to the goods as a result of a transfer from the debtor

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14
Q

What determines if a buyer takes collateral free from a security interest?

A

Whether the buyer gives value, receives delivery, and has no knowledge of the existing security interest

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15
Q

What is the definition of a buyer in the ordinary course of business (BOCB)?

A

A person who buys goods from a seller in the business of selling those goods, in good faith, and without knowledge of a violation of another’s rights

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16
Q

What must a buyer do to qualify as a BOCB?

A
  • Buy goods (other than farm products)
  • Act in the ordinary course
  • Buy from a seller in the business of selling goods of that kind
  • Act in good faith
  • Have no knowledge that the sale violates rights
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17
Q

True or False: A consumer buyer takes free of a security interest even if it is perfected.

A

True, unless the secured party filed a financing statement before the purchase

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18
Q

Define a consumer buyer.

A

A person who buys consumer goods for personal use from a consumer seller without knowledge of the security interest

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19
Q

What happens if a PMSI in consumer goods is not filed?

A

The consumer buyer takes free of the security interest if they do not know of it

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20
Q

What is the rule regarding purchasers of chattel paper?

A

The purchaser has priority if they give new value and take possession or control of the chattel paper

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21
Q

Under what conditions can a buyer of a negotiable instrument take free of a perfected security interest?

A

If the buyer gives value and takes possession in good faith without knowledge of the secured party’s rights

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22
Q

What is the rule regarding future advances in relation to security interests?

A

A buyer takes free of a security interest securing an advance made after the secured party acquires knowledge of the buyer’s purchase or 45 days after purchase

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23
Q

What is the treatment of a transferee of money or funds concerning security interests?

A

A transferee usually takes the money or funds free of a security interest unless colluding with the debtor

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24
Q

Under what condition does an Article 2 security interest have priority over an Article 9 security interest?

A

When the buyer or seller retains possession of the goods

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25
What is the treatment of a debtor in relation to a transferee?
A debtor is not treated as a transferee.
26
Under what condition is a transferee not entitled to favorable treatment?
If the transferee acts in collusion with the debtor in violating the rights of the secured party.
27
What priority does an Article 2 security interest have over an Article 9 security interest?
An Article 2 security interest has priority over a conflicting security interest created by the debtor under Article 9, as long as the buyer or seller retains possession of the goods.
28
How is an Article 2 security interest perfected?
An Article 2 security interest is perfected without filing.
29
What is a 'clean' certificate of title?
A certificate of title that fails to indicate that goods are or may be subject to a security interest perfected under the laws of another state.
30
What happens if a buyer receives delivery of goods with a 'clean' certificate of title?
The buyer can take free of the security interest, provided they have no knowledge of the prior security interest.
31
What is the general rule for priority among secured parties with perfected interests?
The first to file or perfect has priority.
32
What takes priority between a perfected and an unperfected security interest?
The perfected interest has priority over the unperfected one.
33
What rule applies when neither security interest is perfected?
The 'first in time, first in right' rule applies.
34
What is a Purchase Money Security Interest (PMSI)?
A PMSI is a security interest that allows a creditor to have priority over other security interests in the collateral.
35
What is the priority rule for a PMSI in goods other than inventory or livestock?
A PMSI prevails over all other security interests if perfected when the debtor receives possession of the collateral or within 20 days thereafter.
36
Does knowledge of a prior conflicting security interest affect the priority of a PMSI?
No, knowledge by the PMSI secured party does not prevent priority.
37
What is required for a PMSI in inventory or livestock to prevail over other security interests?
The PMSI must be perfected by the time the debtor receives possession and the secured party must notify holders of conflicting security interests.
38
What is a fixture filing?
A fixture filing is the filing of a financing statement covering goods that are or will become fixtures.
39
What is the priority of a security interest in fixtures over a conflicting real property interest?
A security interest in fixtures has priority if perfected by a fixture filing before the real property interest is recorded.
40
What is a construction mortgage?
A construction mortgage secures obligations incurred for the construction of an improvement on land and must indicate it is a construction mortgage.
41
What governs priority if there are conflicting security interests in proceeds?
The basic rules, such as first-to-file-or-perfect, govern priority among conflicting security interests in proceeds.
42
What happens to the priority of a security interest in collateral when it becomes commingled goods?
A security interest perfected before commingling has priority over unperfected interests at the time of commingling.
43
What is the effect of a lapse in a financing statement?
The filing expires and the interest becomes unperfected if a continuation statement is not filed.
44
What happens if a PMSI is held in livestock?
The priority extends to identifiable products in their unmanufactured states.
45
What takes priority over an unperfected security interest when collateral becomes commingled goods?
A perfected security interest ## Footnote This is based on the rules governing secured transactions under the UCC.
46
If multiple security interests are perfected before collateral becomes commingled goods, how do they rank?
They rank equally in proportion to the value of the collateral ## Footnote This ranking occurs at the time the goods became commingled.
47
Does the order of attachment or perfection affect the priority of security interests in commingled goods?
No, it does not matter ## Footnote Priority is determined solely by perfection status.
48
What type of security interest has priority when a secured party has control over investment property?
A security interest held by a secured party with control ## Footnote This applies to investment property, deposit accounts, and letter of credit rights.
49
What happens if a secured party does not have control of the collateral?
Their security interest is subordinate ## Footnote Control is a critical factor in determining priority.
50
Fill in the blank: A perfected security interest has priority over an _______ security interest.
unperfected ## Footnote This is a key principle in secured transactions.
51
True or False: The first security interest to attach has priority over others regardless of perfection.
False ## Footnote Perfection status, not the order of attachment, determines priority.
52
What sections of the UCC pertain to the priority of security interests in commingled goods?
UCC § 9-322 and UCC § 9-336 ## Footnote These sections outline the rules for priority in secured transactions.
53
What does Article 9 prioritize?
Conflicting claims to the same collateral
54
How is priority determined according to Article 9?
By identifying the status of each claimant and applying the appropriate priority rule
55
Who are considered claimants in the context of priority?
Creditors, transferees/buyers, and other secured parties
56
What is the definition of a general creditor?
An unsecured claimant with a claim against the debtor but no lien on or security interest in the collateral
57
What is the priority order for a general creditor?
Security interest > general creditor
58
What defines a judicial-lien creditor?
A creditor who acquires a lien on collateral by judicial process
59
What is the priority order for a judicial-lien creditor?
Perfected security interest > judicial lien > unperfected security interest
60
What is a possessory lien creditor?
A creditor with a possessory lien on the collateral by statute or common law
61
What is the priority of a possessory lien that secures payment for goods or services?
Possessory lien > any security interest
62
True or False: An unperfected security interest has priority if it is unperfected solely because the secured party has not given value.
True
63
What happens if a PMSI is perfected 20 days after the debtor receives possession of the collateral?
The PMSI has priority over a creditor's rights that arose between attachment and filing
64
What is the relationship between a security interest securing an advance and a lien?
Subordinate to a lien creditor's rights when the advance is made more than 45 days after the person becomes a lien creditor
65
What does a transferee obtain from a transfer from the debtor?
Full title to the collateral
66
What happens to a transferee (nonbuyer) regarding a secured party's security interest?
The transferee takes subject to the security interest unless authorized otherwise
67
What are the three conditions under which a buyer takes collateral free from an unperfected security interest?
* Gives value * Receives delivery * Has no knowledge of the security interest
68
What is the general rule for a buyer versus a perfected security interest?
The buyer takes the collateral subject to the security interest
69
What defines a buyer in the ordinary course of business?
Buys goods in good faith without knowledge that the sale violates another’s rights
70
What is the priority of a buyer in the ordinary course of business?
Takes free of any security interest in goods given by the seller
71
What is the priority for a consumer buyer?
Takes free of any security interest unless a secured party has filed a financing statement
72
What is the priority of a purchaser of chattel paper?
Has priority over a security interest in the chattel paper
73
What happens when a buyer secures an advance after the secured party knows of the purchase?
Takes free of the security interest
74
What is the priority for a transferee of money or funds?
Takes free of a security interest in the money or funds
75
What does a 'clean' certificate of title indicate?
A buyer without knowledge of a prior security interest not noted on the title
76
What is the priority rule for perfected versus perfected security interests?
First to file or protect has priority
77
What is the priority rule for perfected versus unperfected security interests?
Perfected > Unperfected
78
What is the priority rule for unperfected versus unperfected security interests?
The first to attach has priority
79
What priority does a PMSI have over a prior non-PMSI security interest?
A PMSI has priority
80
When does a PMSI in goods other than inventory or livestock have priority?
If perfected before or within 20 days after the debtor takes possession
81
What is required for a PMSI in inventory or livestock to have priority?
Perfected by the time the debtor takes possession
82
What is the priority of a perfected PMSI versus another perfected PMSI?
First to file or perfect has priority
83
What happens to the priority of a PMSI in goods concerning proceeds?
Generally extends to the proceeds if perfected when debtor takes possession
84
What is the priority of a security interest in fixtures versus a real property interest?
Has priority if perfected by a fixture filing before the real property interest is recorded
85
What is the priority of a perfected security interest in fixtures versus a subsequent judicial lien?
Perfected security interest in fixtures has priority
86
What priority does a PMSI in fixtures have if perfected by a fixture filing?
Has priority if perfected before goods become fixtures or within 20 days thereafter
87
What happens to a prior construction mortgage versus a security interest in fixtures?
Prior construction mortgage has priority if recorded before goods become fixtures
88
What general rule applies to proceeds?
The 'first to file or perfect' rule generally applies
89
What applies to future advances regarding priority?
The 'first to file or perfect' rule generally applies
90
What priority applies to accessions?
General priority rules apply
91
What is the priority of a security interest held by a secured party with control over investment property?
Has priority over a secured party without control
92
Does a secured party’s knowledge of another security interest in the same collateral affect the secured party’s priority?
No. A secured party’s knowledge of another security interest in the same collateral does not affect the secured party’s priority.

Themis Secured Transactions - July 2025 (MEE) (5 decks)

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