Lender A lent Money to Debtor and perfected a security interest in Debtor's equipment on February 1. Lender B lent money to Debtor and perfected a security interest in the same equipment on March 1. On April 1, Lender A advanced additional funds to Debtor under a future advances clause in the original security agreement. Debtor defaulted. Who has priority regarding the April 1 advance?

Answer options:

Lender A, because the priority dates back to the original filing date.

Lender B, because the advance was made after Lender B perfected.

Lender B, because future advances require a new financing statement.

Pro rata based on the amount of debt owed.

How to approach this question

Apply the 'first to file or perfect' rule, including future advances.

Full Answer

A.Lender A, because the priority dates back to the original filing date.✓ Correct

Under UCC Article 9, priority is generally determined by the date of filing or perfection. If a security agreement contains a future advances clause, advances made later relate back to the original date of perfection for priority purposes. Since Lender A filed/perfected first (Feb 1), Lender A has priority over Lender B for both the original loan and the future advance.

Common mistakes

Thinking each advance needs a new priority date.

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