Lesson 17: Competing Claims and Subordination

Welcome to Lesson 17 of our instructable on exploring secured transactions law fundamentals. In this lesson, we will focus on the intricate aspects of Competing Claims and Subordination under the umbrella of Priority Rules.

Competing Claims

In secured transactions, it's common for multiple secured parties to have interests in the same collateral. These are known as competing claims. The priority of these claims is typically determined by the Uniform Commercial Code (UCC) Article 9.

Note: For a general overview of secured transactions, refer to Lesson 1: Definition and Overview of Secured Transactions.

According to UCC § 9-322, the priority of competing claims is usually determined by the "first to file or perfect" rule. However, there are exceptions and special rules for certain types of collateral.

First to File or Perfect

The general priority rule under UCC Article 9 is the "first to file or perfect" rule. This means that the first secured party to either file a financing statement or perfect its interest has priority over others.

Subordination Agreements

Sometimes, secured parties may enter into a subordination agreement to alter their priority positions. Through a subordination agreement, a secured party can voluntarily agree to subordinate its interest to another secured party's interest.

Subordination Agreement

This Subordination Agreement is made between Party A (Senior Secured Party) and Party B (Junior Secured Party).

Party A agrees to subordinate its security interest in the collateral described below to the security interest of Party B.

Description of Collateral: [Description]

Signed: [Date]

Priority Rules Flowchart

graph TD; A["File or Perfect First"] --> B["Priority"]; B --> C["First Secured Party"]; D["Subordination Agreement"] --> E["Modified Priority"]; E --> F["Agreed Priority Position"];

Exceptions to the General Rule

There are several exceptions to the "first to file or perfect" rule, particularly for certain types of collateral such as Purchase Money Security Interests (PMSI).

Important: PMSIs have special priority rules. For more details, refer to Lesson 30: Purchase Money Security Interests (PMSI).

Mathematical Representation of Priority

The priority rule can be mathematically represented as follows:


  // Priority Calculation Example
  const securedParties = [
    { name: 'Party A', filingDate: new Date('2023-04-01') },
    { name: 'Party B', filingDate: new Date('2023-03-01') },
    { name: 'Party C', filingDate: new Date('2023-05-01') }
  ];

  securedParties.sort((a, b) => a.filingDate - b.filingDate);

  const priorityOrder = securedParties.map((party, index) => {
    return { ...party, priority: index + 1 };
  });

  console.log(priorityOrder);