On April 1, Vendor sold a computer to Debtor on credit. Debtor took possession that day. On April 10, Vendor filed a financing statement. On April 5, Debtor borrowed money from Bank, granting a security interest in the same computer. Bank filed a financing statement on April 5. Who has priority in the computer?

Answer options:

Vendor, because it has a Purchase Money Security Interest (PMSI) perfected within 20 days.

Bank, because it filed first.

Bank, because its interest attached before Vendor filed.

Vendor, but only if the computer is inventory.

How to approach this question

Identify if it's a PMSI. If PMSI in equipment (non-inventory), is there a 20-day grace period? Yes.

Full Answer

A.Vendor, because it has a Purchase Money Security Interest (PMSI) perfected within 20 days.✓ Correct

Vendor has a Purchase Money Security Interest (PMSI) because it sold the goods on credit. For non-inventory goods (like a computer used as equipment), a PMSI has super-priority over earlier perfected interests if the PMSI is perfected within 20 days of the debtor receiving possession. Vendor perfected on day 10, so it wins.

Common mistakes

Applying the general 'first to file' rule without checking for PMSI super-priority.

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