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An unperfected security interest is subordinate to the rights of a person who becomes a lien creditor without knowledge of the security interest and before it is perfected. U.C.C. § 9-301(1)(b).
After the entry of The Credit Bureau of Broken Bow, Inc.’s (Bureau) default judgment against John Moninger, Moninger renewed a note with the bank. No security agreement was signed. A writ of execution was issued on the judgment. When the sheriff levied on the truck, Moninger informed him that the truck was security for the bank's loan. The sheriff did not take immediate possession of the truck. Moninger and the bank executed and filed a security agreement on the truck. The truck was sold upon the writ of execution. The sheriff filed a motion for a determination of the division of the proceeds. The county court entered an order awarding the proceeds to the bank. The district court affirmed.
Did the trial court err in finding the Bank's security interest in the vehicle to be superior to the execution lien of the Bureau?
The court reversed. The court held that the Bureau was a lien creditor without knowledge of the security interest that the bank claimed in the truck, under U.C.C. § 9-301 and Neb. Rev. Stat. § 25-1504 (1943). A valid levy occurred before the bank perfected its security interest in the truck, even though the sheriff failed to take physical possession Bureau thus had prior rights to the proceeds of the sheriff's sale.