Priorities

Investment Property

1. Security interest perfected by control has priority over a security interest perfected by any other method 2. If conflicting security interests were perfected by control, they rank according to the time of obtaining control 3. Security interest granted to debtor's intermediary has priority over security interest granted to another secured party 4. If 1-3 are inapplicable, first to file or perfect rule governs

Deposit Accounts

1. Security interest perfected by control has priority over a security interest perfected via proceeds (in the bank account) 2. If conflicting interests perfected by control, rank according to the time of obtaining control 3. Control obtained by putting deposit account in its own name has priority over all other with control 4. Bank that has control because it maintains the deposit account has priority over all other secured parties with control except a secured party who has obtained control by putting the deposit account in his name (if debtor transfers money or deposit account funds, the transferee of the funds takes free of security interest in the funds unless acting in collusion)

Third Party

Another secured party; a purchaser of the collateral; or a creditor who has obtained a judgment against the debtor

Secured Party vs. Buyer of the Collateral: Unauthorized Sales (Buyer in the Ordinary Course)

Buyer in the ordinary course: person who buys goods in good faith without knowledge that the sale violates the rights of another person in the goods and in the ordinary course from a person in the business selling goods of that kind

Secured Party vs. Buyer of the Collateral: Unauthorized Sales (Buyers Not in the Ordinary Course)

Buyer not in the ordinary course: take subject to perfected security interests. They take free from unperfected security interests and unperfected agricultural liens unless they know of the security interest

Secured Party vs. Buyer of the Collateral: Authorized Sales

Buyer takes free of the security interest. Authorization may be express or implied from the type of sale or from the seller's conduct.

Conflicting PMSIs

Code says, seller PMSI has priority over a financer PMSI

Secured Party vs. Buyer of the Collateral: Unauthorized Sales ("garage sale rule")

Consumer to consumer sales: buyer takes free of security interest even though it is perfected if he buys without knowledge of the security interest, for value, and for his own personal, family or household purposes UNLESS: prior to the purchase the secured party has filed a financing statement covering such goods

Future Advances v. Lien Creditor

Future advance by a secured creditor has priority over a lien creditor if the future advance is made (1) without knowledge of the lien OR (2) within 45 days of the lien arising OR (3) pursuant to a commitment entered into without knowledge of the lien

Secured Party vs. Buyer of the Collateral: Unauthorized Sales

General Rule: buyer in the ordinary course of business takes free if security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence

PMSI in goods other than inventory or livestock

Has priority over a conflicting security interest in the same goods or its proceeds if the purchase money security interest is perfected at the time the debtor received possession of the collateral or within 20 days thereafter

Purchaser of Instruments

Has priority over a perfected security interest in the instrument 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

PMSI in inventory or livestock

Has priority over conflicting security interest in the same inventory or livestock (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 secured party (i) perfects and (ii) sends an authenticated notification to holders of previously filed conflicting security interests in the collateral. Holder of the conflicting security interest must receive this notice within five years before the debtor receives possession of the inventory

Purchaser of Chattel Paper

If purchaser in good faith gives new value and takes possession/control, purchaser will have priority over: 1. security interest in chattel paper that arises merely as proceeds of inventory (as long as there is not indication that it has been assigned to anyone other than purchaser); and 2. any other security interest in the chattel paper, as long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party

Perfected Party vs. Unperfected Secured Party

Perfected secured party has priority

Priorities in a Nutshell

Priority ranking: 1. Buyer in the ordinary course of business who does not know the sale is in violation of the security interest 2. Holder in due course and like of a negotiable instrument 3. Transferee of money or funds from deposit accounts 4. Certain purchasers of chattel paper or instruments who have possession or control 5. Possessory lienholder 6. Art. 2 claimant with possession of goods 7. PMSI (except that a consumer purchaser from a consumer--such as a neighbor buying from a neighbor--has priority over an automatically perfected PMSI in consumer goods) 8. Perfected security interests and judicial liens that have attached to the collateral (including trustees in bankruptcy as of the date the bankruptcy petition is filed) 9. Purchaser of collateral who buys for value and receives delivery without notice of any unperfected security interest 10. Unperfected security interests 11. Debtor

Secured Party v. Judgment Lien Holders

Secured party has priority if (i) secured party perfected before the judgment lien holder got its lien; OR (ii) the secured party obtained a security agreement and filed a financing statement before the judgment lien holder got its lien "lien creditor": creditor who has acquired a lien on the property involved by attachment, levy or the like (lien obtained by judicial proceedings must attach to the collateral)--an unsecured creditor who has obtained a judgment and has levied on that judgment is a lien creditor KEY: Look at the time of perfection of the security interest and the time of the levy by the sheriff

Security Party v. Statutory Lien Claimants

Statutory lien beats even a perfected security interest

Unperfected Secured Parties

The first to attach has priority

Perfected Secured Parties

The first to file OR perfect, whichever occurs first, has priorty

PMSI v. Lien Creditor

if secured party files with respect to a PMSI within 20 days after the debtor receives possession of the collateral, he takes priority over the rights of a lien creditor which arises between the time the security interest attaches and the time of filing