What is Priority of security interests?
In short
Between competing perfected security interests in the same collateral, the first to file or perfect generally wins. A perfected interest beats an unperfected one; between unperfected interests, the first to attach wins.
Key takeaways
- A buyer in the ordinary course of business takes goods free of security interests created by the seller.
- Purchase-money security interests can take priority over earlier interests if perfected on time.
- A bankruptcy trustee can defeat an unperfected security interest.
Where it's tested
REG: Debtor-Creditor & Bankruptcy — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A creditor takes a purchase money security interest in equipment and files a financing statement 15 days after the debtor receives possession. An earlier creditor had already perfected a security interest covering all of the debtor's equipment. Who has priority in the new equipment?