SECURITY INTEREST PRIORITIES
General Creditors (Unsecured): has a claim but no lien or security interest in the property; no property claim – only claim through
contract
Judicial Lien Creditor: creditor who acquires a lien on the collateral by a judicial process
Transferees (frequently tested): persons who obtain full title to the goods as a result of a transfer of the collateral from the debtor
Buyer in the Ordinary Course of Business (BOCB) (frequently tested): a person who
 Buys goods (not including farm products);
 In the ordinary course of business;
 From a merchant who is in the business of selling goods of that kind;
 In good faith; and
 Without knowledge that the sale violates the rights of another in the same goods
Consumer Buyer (frequently tested): person who
 Buys consumer goods for value;
 For his own personal, family, or household use;
 From a consumer seller; and
 Without knowledge of the security interest.
SECURITY INTEREST PRIORITIES
Party 1
General Creditors
Judicial Lien Creditors
Transferee
Priority Status
<
>
Party 2
Secured Party
Unperfected SI
<
Perfected SI
<
Secured Party
Buyer
>
Unsecured Party
Buyer
<
Secured Party
Circumstance
If the transferee is not
a buyer, the SI
continues unless
released by the SP
SP still has an interest
in the collateral
Takes free IF:
 B gives value
 Receives
delivery
 Without
knowledge of
the SI
Takes subject to the
SI unless the SP
releases the SI
Exceptions
Only has a claim through contracts
Even if the SI is unperfected when
the lien arises the SP will have
priority only if the perfection was
delayed because the SP had not
given value yet
SECURITY INTEREST PRIORITIES
Party 1
Buyer in the Ordinary
Course of Business
Consumer Buyer
Priority
Status
>
Party 2
Secured Party
>
Secured Party
Circumstance
Exceptions
Takes free event if the SI is perfected
Will not take free if SP
has a filed financing
statement covering the
goods
PMSI – automatic
perfection; CB will take
subject to the SI
Perfected SI #1
Perfected SI
Unperfected SI #1
PMSI
** Extends to PMSI in
Proceeds from Goods
PMSI: Inventory &
Livestock
Depends
First to File
or Perfect
has priority
>
Depends
First to
attach has
priority
>
Perfected SI #2
Unperfected SI
Unperfected SI #2
>
SI
Non PMSI
A PMSI in goods other than inventory or
livestock prevails over all other security
interests in the collateral, even if the other
security interests perfected earlier, so long as
the PMSI is perfected before or within 20
days after the debtor receives possession of
the collateral.


PMSI is perfected by the time the
debtor receives possession of the
collateral, and
The purchase‐money secured party
sends an authenticated notification
of the PMSI to the holder of any
conflicting security interest before
SECURITY INTEREST PRIORITIES
the debtor receives possession of
the collateral.
PMSI
Construction Mortgage
Proceed SI # 1
Depends
First to File
Financing
Statement or
Perfect has
priority
>
Depends
First to file or
perfect has
priority
PMSI
SI & PMSI in Fixtures
Proceed SI #2
Construction mortgage must
 be recorded before the goods
become fixtures, and it
 Covers only goods that become
fixtures before completion of the
construction
The filing or perfection date for the
original collateral is treated as the filing
or perfection date for the
proceeds