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Priority of Purchase Money Security Interest in Collateral

35. What is the priority of a purchase-money security interest in goods (other than inventory and livestock)?

A purchase-money security interest (PMSI) is a security interest in collateral purchased with the value extended by the creditor. A seller or lender may also acquire a PMSI in goods sold if it finances the purchase. A perfected purchase-money security interest in goods (other than inventory or livestock) has priority over conflicting security interests if the security interest is perfected within 20 days of the debtor receiving possession of the goods. Also, the PMSI provides for priority in identifiable proceeds of the collateral if sold. There is, however, a potential conflict in this situation with secured parties perfected by control over deposit accounts. If the PMSI collateral is sold and the proceeds deposited in a controlled deposit account, a party with a security interest in the deposit account would have priority to the funds.

•    Note: A secured party does not lose PMSI protection because the underlying obligation is renewed, refinanced, or restructured.

•    Discussion: How do you feel about a purchase-money lender’s ability to establish priority for its security interest in goods acquired with the value extended to the debtor? Should the purchase-money lender’s security interest lose priority if not filed within the 20-day period? Why or why not? Can you think of any conflicts between lenders that could arise because of the 20-day filing window for continued perfection?

•    Practice Question: ABC Corp sells printer equipment. 123, LLC purchases a new office printer. ABC finances the purchase over 12 months and attaches a security interest. What will ABC Corp need to do to perfect or continue perfection of its security interest?

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