Article 9 of the Uniform Commercial Code (the Code) governs secured transactions in personal property and fixtures.' When more than one creditor has a security right in the same piece of collateral, the Article 9 rules of priority determine the order in which each creditor may satisfy his claim. The creditor with the highest priority rank gets paid first, and, if his claim exceeds the amount of the proceeds, junior creditors take nothing. Consequently, creditors want to determine their priority rights in collateral before extending credit. If one creditor determines that another creditor will have priority over its security interest, then it may wish to require substitute collateral or to increase the interest rate for the loan. Priority rules should be uniform and readily determinable so that creditors can allocate their risks in extending credit and adjust the terms of the credit accordingly. Because of disagreement among the courts, however, the priority rules governing interests in returned or repossessed goods are neither uniform nor readily determinable. The split among the courts centers on whether, under Section 9-306(5) of the Code, a perfected inventory financer subordinates an unperfected chattel paper financer The following example illustrates a typical situation in which priority conflicts arise.
Michael A. Birrer,
The Priority Battle Over Returned and Repossessed Goods,
44 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol44/iss5/3