PRIORITIES

1. PRIORITIES

2. Basic Approach • Classify the persons claiming the collateral. • Apply appropriate priority rules.

3. Secured Creditor vs. Lien Creditor • Lien creditor • Unsecured (general) creditor who sued and obtained a lien. • Trustee in bankruptcy.

4. Secured Creditor vs. Lien Creditor • Prevailing creditor is first to: • Perfect, or • Obtain lien. • Problem 314 – p. 869

5. Secured creditor vs. Unsecured creditor [House (any kind) vs. homeless] • Secured creditor wins.

6. Unperfected secured creditor vs. Unperfected secured creditor [straw house vs. straw house] • First to attach wins.

7. Perfected secured creditor vs. Unperfected secured creditor [wood house vs. straw house] • Perfected wins • Temporal order irrelevant • Knowledge that unperfected creditor first irrelevant • Problem 315 – p. 870

9. Perfected secured creditor vs. Perfected secured creditor [wood house vs. wood house] • First creditor who either: • filed, or • perfected.

10. Perfected secured creditor vs. Perfected secured creditor • Problem 316 – p.870 • Problem 317 – p. 871 • Problem 318 – p. 871 • Problem 319 – p. 871 • Problem 320 – p. 872 • Dragnet clause

11. Special Rule: One creditor has PMSI in non-inventory goods • PMSI creditor can win (even though not first to file or first to perfect) if perfected within 20 days of when the debtor receives possession of the collateral. • Problem 322 – p. 879 • Problem 323 – p. 882 • Problem 324 – p. 882

12. Special Rule: One creditor has PMSI in inventory • PMSI creditor can win (even though not first to file or first to perfect) if: • 1. Perfected when the debtor receives possession of the inventory, and

13. Special Rule: One creditor has PMSI in inventory • PMSI creditor can win (even though not first to file or first to perfect) if: • 2. Gives notice to holders of conflicting security interests before debtor receives possession of the inventory. • Explain that creditor is getting PMSI. • Describe the collateral. • Notice is effective for five years.

14. Special Rule: One creditor has PMSI in inventory • Problem 325 – p. 883 • Problem 326 – p.894 • Problem 327 – p. 894

15. Review – Two perfected creditors • General Rule = First creditor to either: • File, or • Perfect. • Exceptions: • PMSI (equipment, consumer goods) • Perfected within 20 days of debtor’s possession. • PMSI (inventory, livestock) • Perfected and notice to prior creditors by time of debtor’s possession.

16. Special Rule: Investment property • If one creditor perfected by control, that creditor wins. • Problem 328 – p. 896

17. Special Rule: Deposit Accounts • Secured party with control prevails (only perfection method for deposit accounts). • Problem 329 – p. 896

18. Secured creditor vs. Donee • Secured creditor wins.

19. Secured creditor vs. Purchaser of collateral • Presumption = Secured creditor wins. • BUT, many exceptions so purchaser often wins.

20. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business.

21. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • Honest in fact, plus • Observance of reasonable commercial standards.

22. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • 2. Without knowledge of security interest violation • OK to know about the security interest.

23. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • 2. Without knowledge of security interest violation • 3. Purchased goods that are not farm products • Farm products are governed by the Federal Food Security Act.

24. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • 2. Without knowledge of security interest violation • 3. Purchased goods that are not farm products • 4. Ordinary purchase (from inventory) • “business of selling goods of the kind” • But, not a pawn shop.

25. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • 2. Without knowledge of security interest violation • 3. Purchased goods that are not farm products • 4. Ordinary purchase (from inventory) • 5. Security interest created by seller • Not a security interest created by the seller’s seller.

26. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • 2. Without knowledge of security interest violation • 3. Purchased goods that are not farm products • 4. Ordinary purchase (from inventory) • 5. Security interest created by seller • 6. New value • Not to pay for a preexisting debt.

27. Secured creditor vs. Purchaser of collateral

28. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • 1. Good faith • 2. Without knowledge of security interest violation • 3. Purchased goods that are not farm products • 4. Ordinary purchase (from inventory) • 5. Security interest created by seller • 6. New value • 7. Creditor not perfected by possession

29. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser is a buyer in the ordinary course of business. • Problem 331 – p. 898 • Problem 332 – p. 903 • Problem 333 – p. 904 • Problem 334 – p.909 • Problem 341 – p. 925

30. Secured creditor vs. HDC • HDC wins as takes free of all claims. • Problem 335 – p. 910

31. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer.

32. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • 1. Consumer goods in seller’s hands

33. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • 1. Consumer goods in seller’s hands • 2. Consumer goods in buyer’s hands

34. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • 1. Consumer goods in seller’s hands • 2. Consumer goods in buyer’s hands • 3. Buyer has no knowledge of security interest

35. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • 1. Consumer goods in seller’s hands • 2. Consumer goods in buyer’s hands • 3. Buyer has no knowledge of security interest • 4. Buyer pays value

36. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • 1. Consumer goods in seller’s hands • 2. Consumer goods in buyer’s hands • 3. Buyer has no knowledge of security interest • 4. Buyer pays value • 5. Creditor not perfected by possession

37. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • 1. Consumer goods in seller’s hands • 2. Consumer goods in buyer’s hands • 3. Buyer has no knowledge of security interest • 4. Buyer pays value • 5. Creditor not perfected by possession • 6. Creditor’s interest is unfiled prior to purchase

38. Secured creditor vs. Purchaser of collateral • Purchaser wins if purchaser qualifies as a “garage sale” or “e-Bay” buyer. • Problem 336 – p. 910 • Problem 337(a) – p. 911

39. Secured creditor vs. Purchaser of collateral • Purchaser wins if secured creditor unperfected at time of purchase if: • 1. Purchaser paid value (not a gift),

40. Secured creditor vs. Purchaser of collateral • Purchaser wins if secured creditor unperfected at time of purchase if: • 1. Purchaser paid value (not a gift), • 2. Purchaser took delivery of the collateral, and

41. Secured creditor vs. Purchaser of collateral • Purchaser wins if secured creditor unperfected at time of purchase if: • 1. Purchaser paid value (not a gift), • 2. Purchaser took delivery of the collateral, • 3. Purchaser had no knowledge of the security interest at time of delivery, and

42. Secured creditor vs. Purchaser of collateral

43. Secured creditor vs. Purchaser of collateral • Purchaser wins if secured creditor unperfected at time of purchase if: • 1. Purchaser paid value (not a gift), • 2. Purchaser took delivery of the collateral, • 3. Purchaser had no knowledge of the security interest at time of delivery, and • 4. Creditor did not use PMSI 20-day grace period to perfect.

44. Secured creditor vs. Purchaser of collateral • Purchaser wins if secured creditor unperfected at time of purchase if: • Problem 337(b) – p. 911 • Problem 338 – p. 911

45. Secured creditor vs. Purchaser of collateral • Purchaser wins if secured creditor gave debtor permission to sell. • Problem 337(c) – p. 911

46. Secured Creditor vs. Statutory Mechanics Lien

47. Secured Creditor vs. Statutory Mechanics Lien Statutory mechanics lien wins if: 1. Lien holder furnished services or materials with respect to the collateral,

48. Secured Creditor vs. Statutory Mechanics Lien Statutory mechanics lien wins if: 1. Lien holder furnished services or materials with respect to the collateral, 2. Furnishing was in ordinary course of business, and

49. Secured Creditor vs. Statutory Mechanics Lien Statutory mechanics lien wins if: 1. Lien holder furnished services or materials with respect to the collateral, 2. Furnishing was in ordinary course of business, and 3. Collateral is in possession of lien holder

50. Secured Creditor vs. Statutory Mechanics Lien Problem 347 – p. 936