Lesson 15: General Priority Rules under UCC Article 9

Welcome to Lesson 15 of our instructable on secured transactions law. In this lesson, we will explore the general priority rules under UCC Article 9. Understanding these rules is crucial for navigating the complexities of secured transactions law.

Overview of Priority Rules

Priority rules determine the order in which competing claims to the same collateral will be satisfied. These rules are essential to protect the rights of secured parties and ensure fairness in the resolution of claims.

Basic Principle of Priority

The fundamental principle of priority under UCC Article 9 is “first to file or perfect.” This means that the party who first files a financing statement or perfects their security interest generally has priority over others.

Note: The “first to file or perfect” rule applies to most types of collateral, but there are exceptions for certain types of collateral, such as Purchase Money Security Interests (PMSI).

Priority Among Conflicting Security Interests

When there are conflicting security interests in the same collateral, their priority is determined by the following general rules:

  • First to File or Perfect: The security interest that is first to be filed or perfected has priority.
  • Perfected vs. Unperfected: A perfected security interest has priority over an unperfected security interest.
  • Conflicting Unperfected Interests: If both conflicting security interests are unperfected, the first to attach has priority.

Diagram: Priority Rules

graph TD; A["First to File or Perfect"] --> B1["Perfected Security Interest"]; A --> B2["Unperfected Security Interest"]; B1 --> C1["Priority"]; B2 --> C2["No Priority"]; C1 --> D["First to File"]; C2 --> E["First to Attach"];

Priority in Specific Situations

There are specific situations where the general priority rules under Article 9 may vary. Below are some common scenarios and their respective rules:

Purchase Money Security Interests (PMSI)

PMSIs are given special priority rules under UCC Article 9. A PMSI in goods other than inventory or livestock has priority over a conflicting security interest if it is perfected when the debtor receives possession of the collateral or within 20 days thereafter.

Priority in Proceeds

A security interest in proceeds has the same priority as the security interest in the original collateral, provided that certain conditions are met.

Important: Always ensure to check specific provisions and exceptions under UCC Article 9 as they may affect the priority status.

Diagram: PMSI Priority Rules

graph TD; X["PMSI in Goods"] --> Y["Perfected when Debtor Possesses Collateral or within 20 Days"]; Y --> Z["Priority over Conflicting Interests"];

Conclusion

Understanding the general priority rules under UCC Article 9 is critical for anyone involved in secured transactions. These rules help determine whose interest takes precedence in the event of a conflict, ensuring an orderly resolution of claims.

For more detailed information on secured transactions, explore our other lessons such as Methods of Perfection and Filing a Financing Statement. Also, check out Secured Transactions: A Systems Approach on Amazon for an in-depth understanding.

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