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The primary purpose of Article 9 of the Uniform Commercial Code, U.C.C. art. 9, is to simplify and lend certainty to procedures for establishing security interests in goods. The heart of Article 9 is its notice filing system and the fundamental rule therein is that when a conflict exists between security interests in the same collateral and the security interests were perfected by filing, the first in time to file a financing statement has priority under U.C.C. § 9-312(5)(a). A special category called purchase money security interests gives those interests qualifying a special priority. A special category called purchase money security interest gives those interests qualifying a special priority.
In their course of dealings with debtor, a cattle rancher, plaintiff and defendant both obtained perfected security interests in debtor's cattle. After plaintiff claimed priority as to the cattle, plaintiff and defendant agreed to sell the cattle and to hold the proceeds in escrow, pending determination as to priority of their respective security interests. The trial court held that defendant had priority, having been the first to file a financing statement. Plaintiff appealed.
Did the defendant acquire priority over the debtor’s cattle?
The court affirmed the judgment. Although both security interests were perfected, defendant was the first to file a financing statement. Plaintiff's perfected security interest was not a purchase money security interest under the Uniform Commercial Code, U.C.C. § 9-312(3) or (4). Plaintiff failed to comply with the requirements of that provision, because it did not file a financing statement until more than 10 days had passed from the time the cattle came into debtor's possession. Thus, the "first to file" rule of U.C.C. § 9-312(5)(a) gave priority to defendant.