27. What is the priority of parties secured by “common law and statutory liens”?
Possessory Liens – A possessory lien is a common law or statutory interest in an asset that:
• secures a payment for services or material furnished in the ordinary course of business;
• is create pursuant to statute or common law; and
• the asset is under the control of the lien holder.
A possessory lien, as the name implies, gives priority in situations where an individual has physical possession of the collateral.
• Example: Common types of possessory lien include: repair and storage, boarding of animals, and labor performed or material supplied in course of performance.
Non-Possessory Lien – A non-possessory lien generally arises through judicial or administrative order.
• Example: A common form of non-possessory lien is a judgment that is attached to a debtor’s property.
A possessory lien has priority over an Article 9 security interest, unless the common law or statutory authority for creating the lien indicates otherwise. A non-possessory lien, on the other hand, does not have priority over a security interest that is perfected prior to the establishment of the lien. It does, however, have priority over an unperfected security interest.
• Discussion: Why do you think the law allows a possessory lien to claim priority over a perfected security interest? Should a non-possessory lien be given priority over a perfected security interest? Why or why not? Should a non-possessory lien be given priority over an unperfected security interest? Why or why not? Can you identify a common objective among these priority rules?
• Practice Question: Nate holds a perfected security interest on Mandy’s lawn mower. She takes the mower to Olivia’s shop for repairs. While the mower is being repaired, she is held liable to Patrick in court. The court issues a judgment in favor of Patrick that he seeks to execute by attaching it to Mandy’s mower. Who’s security interest likely has priority in this situation?