Who has priority in conflicts of collateral interest?

In conflicts of collateral interest, buyers in the ordinary course of business inventory have a superior priority because they acquire goods in the context of their normal business operations. This protection is rooted in the Uniform Commercial Code (UCC), which aims to facilitate commercial transactions by giving buyers greater confidence in their purchases. When a buyer purchases inventory from a seller who is a regular dealer in that type of goods, the buyer is typically protected against conflicting security interests, even if those security interests are perfected.

The priority granted to buyers in the ordinary course applies specifically to situations where buyers are acting in good faith and without knowledge of any existing security interests. This means that as long as these buyers meet the criteria of being in the ordinary course of business, their ownership rights to the inventory take precedence over the claims of security interest holders.

In contrast, other parties, such as PMSI holders and unperfected security interest holders, may not have the same level of protection in these scenarios. PMSI (purchase money security interest) holders do have priority under certain circumstances but must meet specific legal requirements. Unperfected security interest holders generally lack priority over perfected interests and must compete with third parties, making their claims less secure in transactions involving buyers in the ordinary course of business. Deb