Contracts - UCC Art 9 - Secured Transactions - Priorities in Security Interests

Question 1

What is the general rule when there are two perfected secured parties and something other than inventory is used as collateral?

Answer 1

If collateral other than inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the purchase money security interest holder perfects before or within 20 days after debtor takes possession of the collateral.

Question 2

What parties do perfected security interests give priority to?

Answer 2

1. Unsecured creditors;
2. Unperfected secured parties;
3. Subsequent lien creditors;
4. Trustees in bankruptcy;
5. Most buyers.

Question 3

List the priorities for the following:  
 •Unsecured vs. secured
 •Secured vs. secured
 •Secured vs. perfected
 •Perfected vs. perfected

Answer 3

• Unsecured vs. secured: Secured.
• Secured vs. secured: First to attached.
• Secured vs. perfected: Perfected.
• Perfected vs. perfected: First to perfect (Exceptions: buyer in ordinary course; inventory; fixtures).

Question 4

What is the general rule of priority between two perfected security interests?

Answer 4

First in time of perfection is first in right.

Question 5

What types of buyers takes precedence over perfected secured interests?

Answer 5

Buyers in the ordinary course of business.

Question 6

What is the general rule when there are two perfected secured parties and inventory is used as collateral?

Answer 6

If collateral inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the nonpurchase secured party receives written or authenticated notice of the purchase money security interest before debtor receives possession of the collateral.