Business law
The Secured Priority
Attachment makes the security interest enforceable; perfection makes it win, and a PMSI can jump the line.
How the exam words it
- -The stem asks when a security interest attaches or what is required to perfect it.
- -Multiple creditors claim the same collateral and it asks who has priority.
- -A purchase-money security interest in inventory or equipment is in play and it asks whether it takes priority.
- -A surety pays or the principal defaults and it asks about the surety's rights or defenses.
The playbook
- 1Attach first: value given, the debtor has rights in the collateral, and a signed security agreement (or the creditor's possession). Then perfect, usually by filing a financing statement.
- 2The general priority rule is that the first to file or perfect wins; an unperfected interest loses to a perfected one and to a lien creditor.
- 3A PMSI in goods other than inventory perfected within 20 days of the debtor receiving the collateral beats an earlier-filed interest; a PMSI in inventory must perfect and give notice before delivery.
- 4A buyer in ordinary course of business takes free of a security interest created by the seller, and a surety who pays gains subrogation, reimbursement, and contribution rights.
The trap
Treating attachment as priority. An interest that has attached but is unperfected still loses to a perfected creditor and to a lien creditor.
How the exam varies it
The same pattern, re-skinned along these axes:
Attachment versus perfection versus priorityPMSI in inventory versus in equipment, and the buyer in ordinary courseSecured-party rights versus surety rights and defenses
Drill this pattern
8 questions of The Secured Priority from across the AUD topics. Clear it by getting 5 right with a streak of 3.