Priorities

Question 1

General rule for priorities

Answer 1

General rule: “first in time, first in right”

Question 2

Priority when unperfected SI v. unperfected SI

Answer 2

first SI to attach = priority

Question 3

Priority when perfected SI v. unperfected SI

Answer 3

perfected SI = priority

Question 4

Priority when perfected SI v. perfected SI

Answer 4

First to file or perfect = priority

Question 5

Priority if collateral instrument or chattel paper

Answer 5

SP that perfects by possession has priority over SP that perfects by filing

Question 6

PMSI rule for priority

Answer 6

A PMSI prevails over an earlier perfected SI (i.e., “second in time, first in right”) if the PMSI is perfected:
* when Debtor gets possession of the collateral; or
* within 20 days of Debtor receiving possession

Question 7

Exception to special PMSI rule

Answer 7

Exception: When the collateral is inventory, the party with the PMSI must also:
* notify the SP, in an authenticated record, that it is obtaining a PMSI in Debtor’s collateral; and
* be perfected when Debtor receives possession of the inventory (no grace period)

Question 8

Lien creditor situations

Answer 8

LC acquires interest in the property by attachment, levy, or similar judicial collection procedures, or is a bankruptcy trustee

Question 9

When SP has priority over LC

Answer 9

SP has priority over a LC if SP:

§ perfects before the LC’s interest arises; or
§ files a financing statement and evidences a security agreement (by authentication, possession, or control) before the LC’s interest arises

Question 10

Special lien creditor rule for PMSI

Answer 10

PMSI takes priority over an intervening LC if the PMSI is perfected within 20 days of when Debtor receives the collateral

Question 11

Accessions

Answer 11

Goods physically united with other goods but the identity of the original goods is not lost

Question 12

Priority rule for accessions

Answer 12

Ordinary rules of priority apply except a SI in the accession is subordinate to a SI in the “whole” of the good if perfected pursuant to a certificate-of-title statute

Question 13

Commingled goods

Answer 13

Goods so physically united with other goods that the identity of the original goods is lost

Question 14

Priority for commingled goods

Answer 14

Ordinary rules of priority apply except for multiple SIs in commingled goods

Each SI ranks equally in proportion to the value of the collateral at the time it became commingled goods

Question 15

Buyer of collateral vs SP

Answer 15

SI survives a sale of the collateral unless:
* SP authorized the sale free of the SI;
* buyer in the ordinary course of business (BIOCOB); or
* consumer-to-consumer transaction

Question 16

Buyer in the ordinary course of business (BIOCOB)

Answer 16

A BIOCOB is a person who:
o buys in good faith;
o without knowledge that the sale violates SP’s rights in the goods;
o in the ordinary course of business; and
o from a person in the business of selling those goods

Question 17

Consumer-to-consumer transaction

Answer 17

Applies to goods bought for personal, family, or household use by someone who uses the goods for that purpose

A buyer takes free of an SI created by the seller if:
o buys for value;
o without knowledge of the SI; and
o before a financing statement is filed

Question 18

Priority if buyer of chattel paper vs. SP

Answer 18

Buyer of chattel paper has priority over an SI in proceeds of inventory if:
§ bought in good faith and in ordinary course of business;
§ gave value and took possession or control of the chattel paper; and
§ the chattel paper does not indicate that it’s been assigned to another party

Question 19

Priority rules for buyer of collateral vs. SP of fixtures

Answer 19

When collateral consists of a fixture, the creditor with a SI in the fixture wants priority over the mortgagee; to do so, the creditor needs to file a fixture filing

“First in time, first in right” applies if the SP with an SI in the fixture files a fixture filing –> mortgage has priority if recorded before the SP files a fixture filing

Question 20

Exception to priority rule for fixtures

Answer 20

Exception: A PMSI in the fixture has super-priority (“second in time, first in right”) if the SI is perfected by a fixture filing:
o before becoming fixtures, or
o within 20 days of the goods becoming fixtures