What happens when one party is perfected by filing while another is perfected through possession?

When one party is perfected by filing a security interest and another party is perfected through possession, the party that is perfected by filing generally has priority over the party with possession, provided that the secured party with the filed interest perfected first. The rationale behind this principle lies in the Uniform Commercial Code (UCC) which governs secured transactions. Under UCC provisions, a security interest is perfected by filing, and it creates a public notice of the interest, thus securing the holder's position against third parties.

Priority rules emphasize how interests are ranked concerning each other, and the general rule is that the first party to file their security interest typically holds priority over those who may later acquire a possessory interest. The public filing serves not only as a notice but also establishes a clear timeline on the interests in the collateral.

In cases involving disputes between perfected interests of this nature, the order of perfection plays a crucial role. This is why other options do not fit the scenario. The option regarding an unsecured interest does not apply, as both parties in this context are perfected through different means. Similarly, the idea that priority is based on the amount of debt does not inherently affect the order of priority as established by the method of perfection.

Thus, the answer indicating that the party