UBE Priority Rules

Last updated: May 2, 2026

Priority Rules questions are one of the highest-leverage areas to study for the UBE. This guide breaks down the rule, the elements you need to recognize, the named traps that catch most students, and a memory aid that scales to test day. Read it once, then practice the same sub-topic adaptively in the app.

The rule

Under UCC Article 9, priority among competing claims to the same collateral is determined by a hierarchy of rules. The default rule for two perfected security interests is first-to-file-or-perfect (UCC § 9-322(a)(1)). A perfected security interest beats an unperfected one; between two unperfected interests, the first to attach wins. Special priority rules override the default: purchase-money security interests (PMSIs) get superpriority if perfected within the statutory window (UCC §§ 9-324, 9-317(e)), buyers in the ordinary course take free of the seller's secured creditor (UCC § 9-320(a)), and certain transferees and lien creditors are protected against unperfected interests (UCC § 9-317).

Elements breakdown

General First-to-File-or-Perfect Rule (Two Perfected SIs)

When two security interests in the same collateral are both perfected, priority goes to whichever creditor was first to either file a financing statement or otherwise perfect, whichever happened earlier — provided there is no gap in continuity.

  • Both creditors have perfected security interests
  • Compare earlier of: filing date OR perfection date for each
  • Earlier date wins, with no gap in perfection
  • Continuous chain of perfection required to keep priority

Common examples:

  • Bank A files financing statement March 1 but loan doesn't close (no attachment) until April 15; Bank B perfects April 1 by attachment plus filing. Bank A wins because filing was first.

Perfected Beats Unperfected

A perfected security interest has priority over a conflicting unperfected security interest in the same collateral (UCC § 9-322(a)(2)).

  • Creditor 1 has attached and perfected
  • Creditor 2 has attached but not perfected
  • Perfected creditor wins regardless of attachment order

Two Unperfected: First to Attach

Between two unperfected security interests, the first to attach has priority (UCC § 9-322(a)(3)).

  • Both creditors are unperfected
  • Compare attachment dates (value + rights in collateral + authenticated security agreement or possession/control)
  • Earliest attachment wins

PMSI in Goods Other Than Inventory or Livestock

A purchase-money security interest in goods other than inventory or livestock has superpriority over a conflicting earlier-filed security interest if perfected within 20 days after the debtor receives possession (UCC § 9-324(a)).

  • Security interest qualifies as PMSI (seller-financed or enabling loan used to acquire)
  • Collateral is goods other than inventory or livestock (typically equipment or consumer goods)
  • PMSI is perfected within 20 days of debtor's receipt of possession
  • Beats earlier-perfected general SI in equipment

PMSI in Inventory

A PMSI in inventory has superpriority only if perfected before the debtor receives possession AND the PMSI creditor sends authenticated notice to other secured creditors of record before the debtor receives possession (UCC § 9-324(b)).

  • Security interest qualifies as PMSI
  • Collateral is inventory
  • PMSI perfected before debtor takes possession
  • Authenticated notice sent to prior filers describing inventory
  • Notice received by prior filer within 5 years before debtor receives possession

PMSI in Livestock

A PMSI in livestock that are farm products gets superpriority on similar terms to inventory PMSIs: pre-possession perfection plus pre-possession notice (UCC § 9-324(d)).

  • PMSI in livestock that are farm products
  • Perfected before debtor receives possession
  • Authenticated notice sent to and received by prior filers before debtor receives possession

Buyer in the Ordinary Course of Business

A BIOC takes goods free of a security interest created by the buyer's seller, even if perfected and even if the buyer knows of it, so long as the buyer does not know that the sale violates the secured party's rights (UCC §§ 9-320(a), 1-201(b)(9)).

  • Buyer purchases in good faith
  • Without knowledge that sale violates a third party's rights
  • In the ordinary course from a person in the business of selling goods of that kind
  • Goods bought from buyer's seller (not seller's seller)
  • SI was created by the buyer's seller

Lien Creditor Priority

An unperfected security interest is subordinate to the rights of a person who becomes a lien creditor (including a trustee in bankruptcy) before perfection (UCC § 9-317(a)(2)).

  • Lien creditor acquires lien (judicial lien, levy, bankruptcy trustee)
  • Before secured party perfects or files
  • Lien creditor takes priority over the unperfected SI
  • 20-day PMSI grace period saves PMSI filed within 20 days even if lien intervenes

Control Beats Filing for Investment Property and Deposit Accounts

A security interest in investment property or a deposit account perfected by control has priority over one perfected by filing or another method (UCC §§ 9-327, 9-328).

  • Collateral is deposit account, investment property, electronic chattel paper, or letter-of-credit rights
  • One creditor has control; another perfected another way
  • Control wins regardless of filing order
  • Among multiple control creditors, time of obtaining control governs

Future Advances and the 45-Day Rule

A perfected SI securing future advances generally retains priority over an intervening lien creditor for advances made within 45 days after the lien attaches, or made without knowledge of the lien, or made pursuant to commitment without knowledge (UCC § 9-323).

  • SI perfected before lien creditor's lien
  • Future advance made within 45 days of lien attachment, OR
  • Made without knowledge of lien, OR
  • Made pursuant to commitment entered into without knowledge of lien

Common patterns and traps

The Equipment-vs-Inventory PMSI Trap

The fact pattern describes goods that could be classified either as equipment (used in the business) or inventory (held for sale or lease). The PMSI creditor takes the equipment 20-day approach when the goods are actually inventory, or the question writer reverses the analysis to test whether you noticed. Inventory PMSI requires pre-possession perfection plus authenticated notice; equipment PMSI gets a 20-day post-possession grace period. Misclassification eliminates the PMSI superpriority entirely.

A wrong choice will say 'PMSI has priority because it was perfected within 20 days of delivery' when the goods are inventory and no pre-possession notice was sent.

The After-Acquired Clause Sleeper

The first-perfected creditor's financing statement covers 'all equipment now owned or hereafter acquired,' and the question quietly introduces collateral acquired years later. Candidates forget that a properly described after-acquired clause reaches the new collateral the moment the debtor obtains rights, and that perfection dates back to the original filing under § 9-322(a)(1). The trap is treating the new collateral as a fresh priority contest starting at acquisition.

A wrong choice argues the later creditor wins 'because the later loan was made when the prior creditor had no interest in the new equipment.'

The BIOC Created-By-Seller Limit

The buyer-in-ordinary-course rule lets a retail buyer take free of a perfected security interest, but only one created by the buyer's immediate seller. If the SI was created by someone earlier in the chain (a manufacturer, a prior owner), § 9-320(a) does not protect the buyer. Candidates apply BIOC reflexively whenever they see a retail purchase without checking who granted the security interest.

A wrong choice says 'the buyer takes free because she purchased in the ordinary course' when the security interest was granted by the manufacturer, not the dealer who sold to the buyer.

The Control-Required Collateral Override

For deposit accounts as original collateral, control is the only method of perfection (UCC § 9-312(b)(1)); for investment property, control trumps filing in priority. Candidates default to first-to-file-or-perfect even when the collateral type triggers control supremacy. The bank holding the deposit account or the broker holding the security wins regardless of filing dates.

A wrong choice picks 'the earlier-filed creditor' when the collateral is a deposit account and the depositary bank has automatic control under § 9-104(a)(1).

The Lien-Creditor Gap Filler

An unperfected SI loses to a subsequent lien creditor (judicial lien, levy, bankruptcy trustee) under § 9-317(a)(2). The trap is testing the moment of perfection: if the secured party files even one day after the lien attaches, it is subordinate. The 20-day PMSI grace period saves a PMSI filed within 20 days of debtor's possession even if a lien intervenes.

A wrong choice gives priority to the secured party because it 'eventually perfected' without checking whether perfection preceded the lien.

How it works

Start every priority problem by classifying each claimant: perfected SI, unperfected SI, lien creditor, buyer, or PMSI. Then apply the cascade. Suppose Reyes Manufacturing borrows from First Bank in 2024, granting a security interest in 'all equipment now owned or hereafter acquired,' which First Bank perfects by filing on January 10, 2024. In March 2025, Reyes buys a new lathe on credit from Liu Equipment, which retains a PMSI and files within 20 days of delivery. First Bank's after-acquired clause reaches the lathe, but Liu's PMSI in equipment perfected within 20 days takes superpriority under § 9-324(a). However, if the lathe were inventory, Liu would lose unless it had also sent authenticated notice to First Bank before delivery — that's the inventory-vs-equipment trap. The exam loves to bury the collateral classification one paragraph above the priority question.

Worked examples

Worked Example 1

Who has priority in the forklift?

  • A First Continental, because its financing statement was filed first and the after-acquired clause reaches the forklift.
  • B Liu Equipment, because it holds a PMSI in equipment perfected within 20 days after Patel received possession. ✓ Correct
  • C Liu Equipment, but only if it sent authenticated notice to First Continental before Patel received the forklift.
  • D First Continental, because Liu failed to perfect before delivery to Patel.

Why B is correct: Liu has a PMSI in equipment (the forklift is used in Patel's business, not held for sale). Under UCC § 9-324(a), a PMSI in goods other than inventory or livestock has superpriority over a conflicting earlier-filed SI if the PMSI is perfected within 20 days after the debtor receives possession. Liu filed on June 30, sixteen days after Patel's June 14 receipt — within the 20-day window — so Liu's PMSI defeats First Continental's earlier-filed after-acquired equipment lien.

Why each wrong choice fails:

  • A: This applies the default first-to-file-or-perfect rule and ignores the PMSI superpriority of § 9-324(a). The after-acquired clause does reach the forklift, but PMSI superpriority overrides. (The After-Acquired Clause Sleeper)
  • C: This imports the inventory PMSI requirements (pre-possession perfection plus authenticated notice under § 9-324(b)) into an equipment transaction. A forklift used in warehouse operations is equipment, not inventory, so the 20-day post-possession grace period applies and no notice is required. (The Equipment-vs-Inventory PMSI Trap)
  • D: PMSI in equipment does not require pre-delivery perfection. Section 9-324(a) expressly permits perfection within 20 days after the debtor takes possession, and Liu met that deadline. (The Equipment-vs-Inventory PMSI Trap)
Worked Example 2

What is the most likely outcome?

  • A Coastal Bank prevails because its security interest was perfected long before the sale, and a perfected SI follows the collateral.
  • B Coastal Bank prevails because Okafor knew of the bank's security interest at the time of purchase.
  • C Okafor prevails because she is a buyer in the ordinary course of business and takes free of the security interest created by her seller. ✓ Correct
  • D Okafor prevails only if she paid fair market value and took possession before Coastal Bank gave notice of default.

Why C is correct: Under UCC § 9-320(a), a buyer in the ordinary course of business takes goods free of a security interest created by the buyer's seller, even if perfected and even if the buyer knows of it — so long as the buyer does not know the sale violates the secured party's rights. Okafor bought from a car dealer in the regular course of its inventory business; the SI was created by Reyes (her seller); and her general awareness of Coastal's line of credit is not knowledge that this sale violated the bank's rights.

Why each wrong choice fails:

  • A: This ignores the BIOC exception in § 9-320(a). Inventory financing creditors are charged with knowing that their debtors will sell to ordinary-course buyers — that's the entire point of inventory lending — so the SI is cut off at the point of sale. (The BIOC Created-By-Seller Limit)
  • B: BIOC status is not destroyed by mere knowledge of the security interest's existence. Section 1-201(b)(9) and 9-320(a) require knowledge that the sale violates the SI, which is a higher bar — Okafor had no such knowledge.
  • D: Fair market value and timing of notice are not BIOC elements. The statute requires good faith and ordinary-course dealing, not market-rate pricing, and Coastal's later notice of default is irrelevant to a sale already completed.
Worked Example 3

Who has priority in the tents?

  • A Reyes, because it holds a PMSI in inventory perfected before any other creditor's lien attached to the specific tents.
  • B Reyes, because PMSI superpriority in inventory requires only perfection within 20 days after the debtor receives possession.
  • C Liu, because Reyes failed to send authenticated notice to Liu before Patel received possession of the tents, defeating PMSI superpriority. ✓ Correct
  • D Liu, because the after-acquired inventory clause attached to the tents the moment Patel received them, and Liu's filing predates Reyes's filing.

Why C is correct: Reyes has a PMSI in inventory, but UCC § 9-324(b) imposes stricter requirements than the equipment PMSI rule. To beat a conflicting earlier-perfected inventory financer, the PMSI creditor must (1) perfect before the debtor receives possession AND (2) send authenticated notice to holders of conflicting filed SIs that is received before the debtor takes possession. Reyes did neither — it filed two days before delivery (good) but never sent notice. Without notice, Reyes loses PMSI superpriority and falls back to the first-to-file-or-perfect rule, which Liu wins by four months.

Why each wrong choice fails:

  • A: Mere perfection before delivery is necessary but not sufficient for inventory PMSI superpriority. Section 9-324(b) demands the additional authenticated-notice requirement, which Reyes ignored. (The Equipment-vs-Inventory PMSI Trap)
  • B: This applies the equipment PMSI 20-day rule (§ 9-324(a)) to inventory. Inventory PMSIs do not get a post-possession grace period; perfection must occur before the debtor receives possession. (The Equipment-vs-Inventory PMSI Trap)
  • D: This reaches the right outcome but for the wrong reason. The first-to-file-or-perfect rule does ultimately decide the case, but only because Reyes's PMSI superpriority claim fails for lack of notice — not because after-acquired attachment timing settles the contest at the moment of delivery. (The After-Acquired Clause Sleeper)

Memory aid

Priority cascade: 'PUFF' — Perfected beats unperfected; Unperfected: first to attach; First-to-file-or-perfect for two perfecteds; Federal/special rules override (PMSI, BIOC, Control, Lien Creditor, Future Advances). For PMSI: 'Equipment = 20 days; Inventory = pre-possession + notice.'

Key distinction

PMSI in equipment versus PMSI in inventory. Equipment PMSI gets a 20-day grace period after the debtor takes possession to file and still claim superpriority. Inventory PMSI demands BOTH pre-possession perfection AND pre-possession authenticated notice to prior filers — miss either, and the PMSI loses to a prior-filed floating lien. Misclassifying collateral or missing the notice requirement is the single most common priority error.

Summary

Apply the Article 9 priority cascade in order — perfected vs. unperfected, first-to-file-or-perfect, then layer on PMSI superpriority, BIOC cutoffs, control rules, and lien-creditor protections — and always classify the collateral type before picking the rule.

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Frequently asked questions

What is priority rules on the UBE?

Under UCC Article 9, priority among competing claims to the same collateral is determined by a hierarchy of rules. The default rule for two perfected security interests is first-to-file-or-perfect (UCC § 9-322(a)(1)). A perfected security interest beats an unperfected one; between two unperfected interests, the first to attach wins. Special priority rules override the default: purchase-money security interests (PMSIs) get superpriority if perfected within the statutory window (UCC §§ 9-324, 9-317(e)), buyers in the ordinary course take free of the seller's secured creditor (UCC § 9-320(a)), and certain transferees and lien creditors are protected against unperfected interests (UCC § 9-317).

How do I practice priority rules questions?

The fastest way to improve on priority rules is targeted, adaptive practice — working questions that focus on your specific weak spots within this sub-topic, getting immediate feedback, and revisiting items you missed on a spaced-repetition schedule. Neureto's adaptive engine does this automatically across the UBE; start a free 7-day trial to see your sub-topic mastery climb in real time.

What's the most important distinction to remember for priority rules?

PMSI in equipment versus PMSI in inventory. Equipment PMSI gets a 20-day grace period after the debtor takes possession to file and still claim superpriority. Inventory PMSI demands BOTH pre-possession perfection AND pre-possession authenticated notice to prior filers — miss either, and the PMSI loses to a prior-filed floating lien. Misclassifying collateral or missing the notice requirement is the single most common priority error.

Is there a memory aid for priority rules questions?

Priority cascade: 'PUFF' — Perfected beats unperfected; Unperfected: first to attach; First-to-file-or-perfect for two perfecteds; Federal/special rules override (PMSI, BIOC, Control, Lien Creditor, Future Advances). For PMSI: 'Equipment = 20 days; Inventory = pre-possession + notice.'

What's a common trap on priority rules questions?

Missing the 20-day PMSI window or applying inventory rules to equipment (or vice versa)

What's a common trap on priority rules questions?

Forgetting that BIOC takes free only of SI created by the buyer's seller

Related UBE sub-topics

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