Also known as: junior security interests · subordinate security interest
Written by attorneys · grounded in primary & secondary sources — see below
A security interest in collateral that ranks below another security interest in the same collateral in terms of priority. Upon a senior secured party's disposition of the collateral the junior interest is discharged unless the junior holder makes a timely authenticated demand and receives proceeds after satisfaction of the senior claim and allowable expenses.
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Jensen Farms held a senior security interest in Jacobs Shipping's fleet of trucks. After default Jensen repossessed and sold the trucks at a public auction. Jacobs Shipping's junior security interest in the same trucks was discharged by the sale even though the junior holder had not consented.
Banque Paribas held a junior security interest in a promissory note owned by Coral Petroleum. When Coral sold the note the junior interest attached to the surplus proceeds and Paribas asserted its claim against those funds in the bankruptcy proceeding.
The junior holder must deliver an authenticated demand for proceeds before distribution is completed and furnish reasonable proof of its interest upon request. Failure to do so relieves the senior party of any obligation to pay the junior from the proceeds.