Which rule governs priority among multiple security interests in the same collateral?

Which rule governs priority among multiple security interests in the same collateral?

• A. The most recently filed lien has priority.
• B. Priority is determined by alphabetical order of creditor names.
• C. All security interests have equal priority.
• D. First to file or perfect governs priority, subject to PMSI exceptions.

Answer: (D)

Timing of perfection determines priority. In secured transactions, the security interest that is first perfected generally has priority over others in the same collateral. Perfection is typically achieved by filing a financing statement or by taking possession or control of the collateral. There’s an important exception for purchase-money security interests (PMSIs). If a PMSI is properly perfected and, where required, notice is given to other secured parties, it can take priority over competing interests in the same collateral even if those interests were perfected earlier. This creates a special override to the usual first-to-file-or-perfect rule. So the standard rule is first to file or perfect governs priority, with PMSI exceptions providing a specific override in purchase-money scenarios.

Timing of perfection determines priority. In secured transactions, the security interest that is first perfected generally has priority over others in the same collateral. Perfection is typically achieved by filing a financing statement or by taking possession or control of the collateral.

There’s an important exception for purchase-money security interests (PMSIs). If a PMSI is properly perfected and, where required, notice is given to other secured parties, it can take priority over competing interests in the same collateral even if those interests were perfected earlier. This creates a special override to the usual first-to-file-or-perfect rule.

So the standard rule is first to file or perfect governs priority, with PMSI exceptions providing a specific override in purchase-money scenarios.