Priority
The relative ranking of competing claims to the same collateral or asset, determining the order in which creditors are paid from proceeds. Under Tex. Bus. & Com. Code § 9.322, priority among perfected security interests is generally first-to-file or first-to-perfect, with substantial exceptions for purchase-money security interests, special collateral types, and statutory liens.
Priority is the relative ranking of competing claims to the same collateral or asset, determining the order in which creditors are paid from proceeds when the collateral is sold or distributed. In secured-transaction practice, priority disputes are decided primarily under UCC Article 9, supplemented by special rules for purchase-money security interests, particular types of collateral, statutory liens, and intercreditor agreements. Priority is the defining concept of secured lending: an unperfected security interest is junior to almost everything; a properly perfected first-priority security interest is senior to almost everything except specifically prioritized claims.
The first-to-file-or-perfect rule
The default UCC priority rule under § 9.322 is first-to-file-or-perfect: among conflicting perfected security interests, priority is determined by the earliest of (1) filing of a financing statement covering the collateral or (2) other perfection (possession, control, automatic perfection). The party that achieves perfection first wins, even if their security interest attached later. This makes early UCC-1 filing critical, many commercial lenders file financing statements at or before loan closing, sometimes pre-filing before the security agreement is signed (permissible under § 9.502(d) with debtor authorization).
Purchase-money security interest priority
A purchase-money security interest (PMSI), a security interest taken to enable the debtor to acquire the specific collateral, has special priority rules. Under § 9.324, a PMSI in goods (other than inventory and livestock) is senior to a conflicting non-PMSI security interest, even one perfected earlier, provided the PMSI is perfected within 20 days of debtor's possession of the collateral. PMSI in inventory has different requirements (notice to prior secured parties, perfection before delivery). The PMSI exception allows equipment vendors, financing companies, and floor-plan lenders to take priority over the borrower's general bank lender for the specific equipment they finance.
Priority by collateral type
Different collateral types have different priority rules: (1) deposit accounts, priority by control under § 9.327 (the bank where the account is maintained always has priority unless it subordinates); (2) investment property, priority by control under § 9.328; (3) letter-of-credit rights, control under § 9.329; (4) chattel paper, special rules under § 9.330 favoring possession; (5) fixtures, § 9.334 governs priority between secured parties and real-property mortgagees, with special priority for fixture filings recorded in the real-property records.
Priority of lien creditors and bankruptcy trustees
Under § 9.317, an unperfected security interest is subordinate to (1) lien creditors who become such before perfection; (2) buyers of goods, accounts, instruments, and chattel paper who give value before perfection without knowledge of the security interest. The "lien creditor" category includes bankruptcy trustees under 11 U.S.C. § 544(a). This is the principal reason perfection matters: an unperfected security interest is essentially worthless against a bankruptcy trustee. Filing before bankruptcy is the most common method of avoiding lien-creditor priority loss.
Subordination by agreement
Section 9.339 expressly authorizes subordination of priority by agreement. A senior creditor may subordinate its priority to a junior creditor by intercreditor agreement; the subordination is effective without consent of the debtor (though the debtor's acknowledgment is often obtained). Bankruptcy enforces such subordination under 11 U.S.C. § 510(a). Subordination agreements are the principal tool used to reorder priority for commercial reasons (e.g., for new financing during a workout).
Real property priority
Real property liens follow a different priority framework under Texas Property Code: priority is generally determined by recordation date under § 13.001, with mechanic's liens following Chapter 53's special framework that gives perfected mechanic's liens priority back to commencement of construction or first delivery of materials. Federal tax liens have separate priority rules under 26 U.S.C. § 6323. Lien priority on real property is the principal concern of title insurance, Schedule B exceptions in title commitments document existing liens that take priority over the buyer's anticipated mortgage.
For Texas commercial lenders and counsel, priority is the central technical concern in secured lending. Best practice: (1) file UCC-1 promptly upon authorization, often pre-closing; (2) check existing UCC filings against the debtor by exact legal name (small variations can defeat priority); (3) calendar continuation statements (UCC-1 must be continued every 5 years under § 9.515); (4) for real-property collateral, ensure deed of trust recordation in proper county; (5) for fixture filings, ensure both UCC and real-property recordation; (6) for PMSI structures, file within 20 days of debtor possession; (7) for control-based collateral, ensure proper control agreements with the depository or intermediary. For borrowers, priority disputes often arise during financings, the new lender's diligence reveals existing UCC filings that the borrower had forgotten or thought released, requiring termination statements to clear the way.