Priority

Question 1

General Rule

Answer 1

First in Time, First in Line

The claimant with the earliest priority date wins.

Question 2

Secured Creditor v. General Unsecured Creditor

Answer 2

A secured creditor, whether perfected or not, will always have superior priority over a general unsecured creditor who has failed to reduce her claim to judgement and acquire a lien on the collateral.

Question 3

Perfected Secured Creditor v. Perfected Secured Creditor

Answer 3

The general priority rule among conflicting perfected security interests in the same collateral is that the first to file or perfect wins.

Each competing perfected secured creditor’s priority date is the earlier of (1) the date on which any financing statement was filed or (2) the date on which the security interest was actually perfected.

A security interest cannot be perfected unless it has attached. This rule allows a creditor to file a financing statement before its security interest has even attached. Once the security interest attaches, it will be perfected; its priority will relate back to the date of filing.

Question 4

Purchase Money Security Interest

Answer 4

Holders of perfected PMSIs may enjoy super priority. This means that PMSI holder takes priority over earlier, perfected secured creditors.

The Basic Rule – for all goods other than inventory or livestock (and consumer goods bc automatically perfected), if the PMSI is perfected within 20 days of the debtor’s receiving possession of the goods, the holder will have super priority both in those goods and in their identifiable proceeds

Question 5

PMSI - Inventory

Answer 5

If the collateral is inventory, the PMSI holder must take four specific steps to achieve super priority:

1. Perfected When Debtor Receives Possession — The PMSI is perfected when the debtor receives possession of the inventory
2. Authenticated Notification — The PMSI holder must send an authenticated notification to specific creditors with conflicting security interests in the inventory, including those perfected by filing
3. Timely Notification — The competing claimants must receive the notification within five years before the debtor receives possession of the inventory
4. Contents of Notification — The notification must describe the inventory and clearly state that the person sending the notification has or expects to have a PMSI in that inventory

Question 6

PMSI - Livestock

Answer 6

To achieve super priority in livestock, a creditor with a PMSI in livestock must take the same steps as one with a PMSI in inventory. However, with livestock, the authenticated notification must be received within six months before the debtor receives possession of the collateral, not five years.

Question 7

Control and Priority

Answer 7

because security interests in deposit accounts and letter-of-credit rights must be perfected by control, the secured party with control of the collateral has priority over any other secured party lacking control.

Question 8

Control Over Investment Properties

Answer 8

For investment property, a creditor perfected by control has priority over a competing creditor perfected by filing.

Question 9

Control Over Deposit Accounts

Answer 9

For competing perfected secured creditors in the same deposit account, priority often depends on how each secured creditor established control

Depositary Bank’s Customer — If the secured party achieves control by becoming the depositary bank’s customer with respect to the deposit account, then that secured party beats out any competing secured party to achieve control by some other method

Depositary Bank — If neither competing secured party achieved control by becoming the depositary bank’s customer on the deposit account, then the prevailing secured party is the one to achieve control by being the bank with which the deposit account is maintained, or the depositary bank

Authenticated Control Agreements — If each competing creditor achieved control of the deposit account through an authenticated record or agreement, then whichever creditor obtained control first will have priority

Question 10

Control Over Letter of Credit Rights

Answer 10

If the competing secured creditors are perfected in the same letter-of-credit right through control, the first creditor to achieve control has priority

Question 11

Buyer - Buyer in the Ordinary Course of Business

Answer 11

A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence

Question 12

Priority of Buyer in the Ordinary Course

Answer 12

If a buyer in the ordinary course of business buys any goods (other than farm product from a person engaged in farming operations), she takes free of any prior existing security interest in those goods, perfected or not, as long as the security interest was created by the one selling the goods to the buyer. True even if buyer knows about the security interest

Question 13

Buyer in the Ordinary Course of Business Defined

Answer 13

A buyer in the ordinary course of business is a person buying in good faith and without knowledge that the sale violates another person’s rights in the goods. The seller must be someone (not a pawnbroker) in the business of selling goods of the kind, and the sale must comport with the usual, customary practices of the seller of the kind of business in which the seller engages. The buyer must take possession of or have the right to recover the goods, and the buyer must not acquire the goods in a bulk or transfer or as security or satisfaction of a money debt.

Question 14

Good Faith Defined

Answer 14

The term good faith means actual honesty together with observing commercial fair-dealing standards that are reasonable

Question 15

Without Knowledge That Sale Violates Another’s Rights

Answer 15

The requirement that a BOCB take without knowledge means actual knowledge that the sale is in violation of another party’s rights. Mere notice or reason to know is insufficient.

A buyer does not qualify as a buyer in the ordinary course if she knows that the sale violates another’s rights in the goods. The fact that a debtor sells or otherwise disposes of collateral does not, by itself, violate the secured party’s rights in collateral. Thus, the buyer’s knowledge of the security interest is alone not enough to defeat the status of a buyer in the ordinary course of business. However, of the buyer knows that the sale violates a contractual agreement between the debtor and the secured party, then the buyer will take subject to the security interest

Question 16

Leases

Answer 16

If a person leases collateral instead of purchasing it, but otherwise meets the definition of a buyer in the ordinary course of business, then the person’s lease is free of any prior perfected or unperfected security interest created by the lessor. True even if lessee knows about the security interest like BIOC

Question 17

Article 2 Claimants

Answer 17

When a buyer or seller has a security interest arising under Article 2, the 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

Question 18

Statutory Lien Holders

Answer 18

come back

Question 19

Fixtures

Answer 19

goods that have become so related to particular real property that an interest in them arises under real property law

Question 20

Generally

Answer 20

a security interest in goods continues to exist even after the goods become fixtures

Question 21

Any security interest in ordinary building materials incorporated into an improvement on land…

Answer 21

ceases to exist once the goods are incorporated into the improvement (ex. Siding, windows, studs, joists, pipes, duct work, etc.)

Question 22

Fixture Priority

Answer 22

Any security interest in a fixture is subordinate to any conflicting interest in the underlying real property held by someone other than the debtor.

However, a security interest in fixtures has priority over an interest in the real property with which the fixtures are associated if the security interest in fixtures is perfected by a fixture filing before the real property interest is recorded.

Question 23

Accession

Answer 23

a good physically united with other goods in such a way that its identity is not lost. It remains possible to distinguish from the other goods.

Question 24

Accession - Security Interest

Answer 24

A security interest may be created in the original good, and that security interest will continue when the good becomes an accession. If a security interest in the original good is perfected when the good becomes an accession, the security interest will remain perfected afterwards.

Question 25

Accession - Priority

Answer 25

Original rules of priority govern. However, if the accession becomes part of a larger good, and a security interest in the larger good is perfected by compliance with the state’s certificate-of-title system, then the security interest in the larger good takes priority over a security interest in the accession alone

Question 26

Commingling

Answer 26

a good physically united with other goods in such a way that it is impossible to distinguish the original good from the other goods

Question 27

Commingling - Security Interest

Answer 27

Because the identity of the original good is lost, a security interest does not exist in commingled goods. However, if a good that is collateral does change into a commingled good, a security interest attaches to the resulting product or mass. Assuming the security interest in the original good was perfected, the security interest in the resulting product or mass remains perfected

Question 28

Commingling - Priority

Answer 28

Ordinary priority rules apply. However, if more than one security interest attaches to the product or mass for having previously existed in the commingled goods, then the rules differ. In this case, a security interest that was perfected when the goods became commingled prevails over one that was not. Security interests that were perfected at commingling rank equally in proportion to the value of the collateral when it became commingled.

Question 29

Federal Priority for Debts and Taxes

Answer 29

look at notes