In a scenario where neither party is perfected by filing, who has priority?

In the context of secured transactions, when neither party has perfected their security interest by filing, priority typically goes to the party who first perfected their interest. Perfection involves taking steps to legally establish a secured party’s interest against third parties, usually through filing a financing statement or taking possession of the collateral. However, in situations where no perfection has occurred, the principles of priority are generally based on the time of attachment of the security interest.

When both parties involved in the transaction are unperfected, their rights in the collateral are determined by the order in which their respective security interests attached. The first party to attach their interest retains priority because priority among unperfected interests is commonly established by the earlier attachment date. This is grounded in the Uniform Commercial Code (UCC), which stipulates that unperfected security interests rank according to their respective dates of attachment.

Thus, even though neither party has taken the steps necessary to perfect their interests, the concept of first attachment allows for relatively clear determination of priority based on the sequence of events leading to the security interests being established. Therefore, the correct answer accurately reflects this legal principle.