Circular Priorities in Secured Transactions Law

Abstract:     
Circular priority problems are endemic in secured transaction law. A circular priority situation arises when there are three or more parties with competing claims to the same asset and there is no clear ranking of priority among them. There are multiple approaches applied by courts or advanced by commentators to resolve circular priority problems. The different mechanisms used by the courts to resolve a circular priority problem are evaluated using criteria that reflect the general values and goals of commercial law, and the mechanism that best accords with this criteria is identified. Although consensus on the best way of breaking a circularity will reduce litigation costs, it does not provide a complete solution as it can be undermined by ex post bargaining among creditors. Given this instability, priority rules should be designed so as to minimize the occasions when such problems can arise.

Number of Pages in PDF File: 31

Keywords: Secured Transactions

Accepted Paper Series