Perfected Secured Creditor v. Perfected Secured Creditor
As between two secured creditors, the first to file a financing statement OR to perfect has priority.
whichever is earlier
- From hypo—even if the winning fighter didn’t even give value (so no attachment and no perfection) until later, an earlier filing date can still defeat
- From hypo—if it involved PMSI in consumer goods automatic perfection!
Unperfected Secured Creditor v. Unperfected Secured Creditor
As between two unperfected secured creditors, the first to attach has priority.
Perfected Secured Creditor v. Unperfected Secured Creditor
As between a perfected secured creditor and an unperfected secured creditor, the perfected secured creditor has priority.
How do PMSIs affect priority battles between secured creditors?
PMSI in goods other than inventory or livestock:
A PMSI has priority over a conflicting secured interest in the same collateral or its identifiable proceeds PMSI is perfected within 20 days of the debtor taking possession of the collateral.
- [Moll: usually about equipment]
- Rule: PMSI in goods (equipment) jumps to the front of priority line if perfected immediately or within 20 days
PMSI in inventory or livestock:
A PMSI has priority over a conflicting security interest in the same inventory or livestock if the secured creditor if, before the debtor takes possession of the inventory or livestock, the secured creditor both (1) perfects and (2) sends an authenticated notification to holders of previously filed conflicting security interests in the collateral.
PMSI v. PMSI
As between two PMSIs, a seller-financed PMSI has priority over a financer-financed PMSI.
Special Rules for Depository Accounts
A security interest in a depository account can only be perfected by control. As between two perfected security interests in a depository account, priority is in the following order:
- A security interest perfected by control has priority over a security interest perfected via proceeds. (Recall that a secured creditor automatically has a perfected security interest in identifiable proceeds from collateral.)
- As between two security intersts protected by control, the interest perfected by control earlier has priority.
- A secured creditor who obtained control by putting the account in her name has priority over secured creditors who obtained control by other means.
- A secured creditor who obtained control because it maintains the depository account has priority over all other secured creditors, except those who obtained control by putting their name on the depository account.
o Special priority rules: deposit accounts (high priority)
Remember: deposit accounts can only be perfected by control (3 ways)
- Best: **co-owner **(secured creditor putting the account in his own name)
- Next best: maintain account (bank account at the bank that’s the secured creditor)
- Worst: control agreement
Secured Party v. Buyer of Collateral
(General Rule & Exceptions)
General Rule: If a buyer purchases collateral, the security interest remains on the collateral.
(secured party WINS)
Exceptions: There are several exceptions:
- Authorized Sales (express or implied);
- Buyer in the Ordinary Course;
- Garage Sale Rule.
Authorized Sales Exception
A buyer of collateral subject to a security interest takes free of the security interest if the sale is authorized by the secured creditor free of the security interest. Authorization may be express or implied:
- Authorization is express if it is contained in the security agreement.
- Authorization is implied (1) for the sale of inventory to an ordinary consumer when the security agreement is silent or (2) if the secured creditor continually acquiesces to sales even though the security agreement prohibits such sales.
- o Ex: appliance store selling washer to a customer probably implied
- o Ex: appliance store selling entire inventory to liquidation sales company probably not implied
- o [Moll: Sale of inventory? To an ordinary consumer? In a situation where the security agreement is silent?
- –> if all yes, probably implied
Buyer in the Ordinary Course of Business Exception
A buyer in the ordinary course of business takes free from a security interest created by the seller, even if that interest is perfected and even if the buyer knows about the interest.
A buyer is a buyer in the ordinary course if:
- They purchase the goods in good faith;
- They purchase the goods without knowledge that the sale violates the rights of the secured creditor;
- The sale is in the ordinary course of business
- From seller of goods of that kind.
- (Moll: weird, but important you, buyer, are a buyer in the ordinary course if the seller sells in the business of selling goods of that kind)
o Also: note that the buyer cannot have knowledge that the sale violates the rights of another, but you can have knowledge that the thing you’re buying has a security interest on it
Just because there’s a security interest, doesn’t mean buying it will violate a security agreement
o From hypo: general analysis per Moll
Did the creditor authorize
What about implied authorization? - Is this inventory to an ordinary consumer?
Is the person a BIOC?
Did the seller create the security interest?
What if a buyer is not a buyer in the ordinary course?
A buyer not in the ordinary course takes collateral subject to a perfected security interest but free from an unperfected security interest.
Garage Sale Rule
A buyer of consumer goods in a consumer-to-consumer transaction takes free from a perfected security interest if:
- She buys without knowledge of the security interest;
- She buys for value;
- She buys for personal, household, or family use; UNLESS
- Before the purchase, the secured creditor filed a financing statement covering the collateral. [NO FINANCING STATEMENT]
⇒ Notice that this is why it’s important that a financing statement can be filed before a security interest attaches.
Secured Creditor v. Judgment Lien Holder
General Rule + PMSI Rule + Exception
Judgment lien holder = creditor who won a judgment in court
[Moll: unsecured creditor who sued in court (for K breach) and wins and gets a judgment –> judgment creditor sends sheriff out to seize the property –> judicial lien pops up on that property]
Rule: judgment lienholder wins if lien arose before security interest was perfected
PMSI Rule: if secured party files a financing statement regarding PMSI within 20 days after debtor receives collateral –> secured party wins over judicial lien arising between security interest attachment and filing
Exception—future advances
* For a perfected future advance to win, future advance must be made (1) without knowledge of the lien, (2) within 45 days of lien arising, or (3) per commitment entered into without knowledge of lien
Moll: unsecured creditor who sued in court (for K breach) and wins and gets a judgment judgment creditor sends sheriff out to seize the property judicial lien pops up on that property
Secured Creditor v. Statutory Lien Claimant
As between a perfected secured creditor and a statutory lean claimant, the statutory lien claimant has priority.
Security Interest in Accession v. Security Interest in Whole
A security interest in an accession is subordinate to a secrity interest in the whole which is perfected in compliance with the requirement of a certificate-of-title statute.
- Priority: general priority rules apply (like first to file or perfect, special PMSI rules)
o Special rule—vehicles
Security interest in accession is
* Subordinate to security interest in whole (like a car)
* Perfected by compliance with title statute
Security Interest in Fixture v. Later (Subsequent) Security Interest in Real Estate
A perfected security interest in a fixture has priority over a real estate interest that arises subsequent to the perfection of the security interest.
Securied Interest in Fixture v. Prior Real Estate Interest
A prior real estate interest that is properly recorded has priority over a security interest that subsequently arises.
First in time wins, unless security interest is PMSI
* If PMSI –> PMSI wins if perfected by fixture filing before goods become fixtures or within 20 days
NOTE: construction mortgage always wins
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Setting up a Corporation8
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Issuance of Stock7
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Directors and Officers21
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Fundamental Corporate Changes6
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Shareholders27
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Agency23
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Partnerships36
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Other Unincorporated Forms14
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Wills51
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Trusts41
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ST-Introduction11
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ST-Types of Collateral16
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ST-Attachment6
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ST-Perfection19
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ST-Priority16
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ST-Default8
