When does priority become an issue?
Where the secured party and some third party are claiming the same collateral
What is the general rule for priority?
First to file or perfect, whichever occurs first, has priority
- operates as a “pure race statute”
What is the rule if no party files or perfects?
First party to attach has priority
What is the priority rule concerning purchase money security interests in goods other than inventory or livestock?
A PMSI in such goods has priority over a conflicting security interest in the same goods or its proceeds if:
- the PMSI is perfected at the time the debtor received possession of the collateral; or
- within 20 days thereafter
NOTE: always remember to state the general rule
NOTE: this is inapplicable to consumer goods, as well
What is the priority rule concerning purchase money security interests in inventory or livestock?
PMSI in inventory or livestock has priority over a conflicting security interest in the same inventory or livestock if:
before the debtor receives possession** of the inventory or livestock, the **secured party
- perfects; and
- sends an authenticated notification to holders of previously filed conflicitng security interests in the collateral
- inventory–must receive notice within 5 years before the debtor receives possession of the inventory
- livestock–must receive notice within 6 months before the debtor receives possessino of the livestock
What is the priority rule for a purchase money security interest in crops?
A secured party who gives new value** to **enable** a **debtor to grow crops
within 3 months before the crops are planted
has priority over perfected security interests covering obligations incurred more than 6 months before the crops were planted
What happens when there are conflicting purchase money security interests?
A seller** secured party **PMSI** has **priority** over **lender** secured party **PMSI
What are the priority rules for investment property?
A security interest perfected by control has priority** **over** a security interest perfected by **any other method
If conflicting control** security interests, rank according to **time of obtaining control
A security interest granted to a debtor’s intermediary has priority** over a security interest **granted by the debtor to another secured party
Notwithstanding the above, first to file or perfect governs priority otherwise
What are the priority rules for deposit accounts?
A security interest perfected by control has priority over** a security interest perfected by **any other method (e.g., cash proceeds)
If conflicting interests were perfected by control,** **rank according to time of obtaining control
A secured party who has obtained control by putting the deposit account in its own name** has **priority** over **all other secured parties with control
A bank that has control because it maintains the deposit account** has **priority** over **all other secured parties
- EXCEPT a party who obtained control by putting in his name
- Also bank with which a deposit account is maintained may exercise any right of recoupment or setoff except for obtained control by putting in his name
NOTE: if a debtor transfers money or deposit account funds**, the **transferee** of the funds takes **free of a security interest** in the funds **unless the transferee acts in collusion with the debtor in violating the rights of the secured party
What are the priority rules for a purchaser of chattel paper?
If a purchaser of chattel paper in good faith gives new value** and **takes possession** in the **ordinary course of business**, the purchaser will have **priority over:
- security interest that arises merely as proceeds of inventory; and
- any other security interest as long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party
NOTE: any notation** on the chattel paper **of assignment is sufficient to give notice
What are the priority rules for a purchaser of instruments?
Priority over a perfected security interest if
- the purchaser gives value; and
- takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party
What are the priority rules for authorized sales of the collateral?
The buyer takes free of the security interest
- express authorization;
- implied authorization (e.g., inventory in the ordinary course of business)
NOTE: a written consent requirement may be waived via acquiescence
What are the priority rules for unauthorized sale of the collateral to a buyer in the ordinary course of business?
General Rule–
**A buyer _in the _ordinary course of business**
- does the seller usually sell this stuff;
- does the seller usually sell this stuff in this manner
takes free of a security interest
created by his seller even though the security interest is perfected and even though the buyer knows of its existence
- exception: person buying farm products from a person engaged in farming ops
- exception: the buyer knows that sales is in violation of the terms of the security agreement
What are the priority rules for unauthorized sales to buyers not in the ordinary course of business?
Buyers not in the ordinary course of business
- take subject** to **perfected security interests
- take free** from **unperfected** security interests (and unperfected agricultural liens) **unless they know of the sercurity interest
NOTE: a buyer not in the ordinary course of business can gain priority over a previously perfected secured party
- who makes a future advance on collateral after the buyer purchases the collateral IF:
- the advance was made after the secured party learned of the purchase; or
- more than 45 days after the purchase
What is the priority rule for unauthorized sales to consumers in consumer sales?
In consumer goods**, a buyer takes **free** of a **security interest even though it is perfected if:
- he buys without knowledge of the security interest
- he buys for value; and
- he buys for his personal family or household purposes
UNLESS** the secured party **filed a financing statement covering such goods
NOTE: the goods must be consumer goods in the hands of both the buyer and the seller
- consumer-to-consumer sales
What is the priority rule for a PMSI versus a buyer not in the ordinary course?
If the secured party files** with respect to a **purchase money security interest
within 20 days after the debtor receives possession of the collateral,
he takes priority** **over the
right of a buyer not in the ordinary course
which arises between** the time the security interest **attaches** and the time of **filing
What is the general priority rule of a secured party versus a judicial lien creditor?
Perfected by filing = at the time the judgment was duly recorded
Then apply the general rule–first to file or perfect
NOTE: PMSI v. Lien Creditor
- if a secured party files with respect to a purchase money security interest within 20 days after the debtor receives possession** of the collateral, take **priority over the rights of a lien creditor which arises between the time the security interest attaches and time of filing
NOTE: a lien creditor will have priority** over a previously perfected secured party who makes a **future advance on collateral if
- the future advance was made more than 45 days after the lien arose,
- unless the advance was made without knowledge of the lien OR pursuant to a commitment made without knowledge of the lien
What is the priority rule regarding a secured party and a statutory lien claimant?
Generally, the secured party takes priority over a statutory lien claimant
