Purchase Money Security Interest in Inventory - Explained
What is a PMSI in Inventory?
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What is the priority of a purchase-money security interest in inventory?
Special rules apply to purchase money security interests in inventory. 9-324(b). In order to qualify for PMSI priority in inventory, the secured transaction must meet the following requirements.
Next Article: Priority in Conflicting Purchase Money Security Interests Back to: SECURED TRANSACTIONS
What is Perfection at Time of Possession?
The PMSI must have been perfected at the time the debtor takes possession of the inventory. This means the security agreement and value extended must have taken place prior to the receipt of the inventory.
Note: This can be temporary automatic perfection that is later extended by filing within the 20-day window. The key aspect is that the security agreement must have already attached.
What is Notice to Secured Parties?
The secured party must provide authenticated notification to any holders of conflicting security interests in the debtors collateral prior to perfection. The holder of the conflicting security interest must receive the notice within 5 years prior to the debtor obtaining possession of the collateral.
Note: Lenders who finance the purchase of inventory often send blanket notices to secured creditors that they will be extending credit and perfect a security interest.
What is Description of the PMSI Collateral?
The notification to other secured parties must state that the creditor intends to take a PMSI in the debtors inventory and it must describe the inventory.
The UCC extends PMSI priority to identifiable proceeds from the sale of the collateral. The priority in cash is limited, however, if the cash is deposited in a deposit account. 9-327.
Why do you think the law requires additional notification procedures to claim a PMSI in inventory? Why do you think the law requires perfection at the time the debtor takes possession? Does this right detriment existing secured creditors? Why or why not?
ABC Corp is a lender that regularly finances inventory purchase for small businesses. ABC loans money to 123, LLC to purchase inventory. LLC has numerous creditors with perfected security interests in all of 123s assets. What process must ABC follow if it intends to lend money to 123 to purchase inventory and wishes to perfect a purchase money security interest?
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Pledge as Collateral
- Cross Collateralization
- After-Acquired Collateral
Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
- Limited Recourse Debt
Uniform Commercial Code - Article 9
- What are the common types of security interest in real property (land)?
- What is a mortgage?
- How does a security interest protect the mortgage holder?
- Lis Pendens
- Deficiency Judgment
- What is a Deed of Trust or Security Deed?
- What is a Land Sale Contract?
- What is a security interest in personal property?
- How does one establish a security interest in personal property?
- What is Perfection of a security interest?
- What are the methods of perfecting a security interest in personal property?
- UCC-1 Statement
- How does one establish a security interest in real property (land)?
- Register of Deeds
- What is Automatic Perfection of a security interest?
- What is a Purchase Money Security Interest (PMSI) in consumer goods?
- What is a Purchase Money Grace Period for a PMSI in non-consumer goods?
- How does one continue perfection of a PMSI in non-consumer goods?
- What is Temporary Automatic Perfection in Proceeds from the sale of goods?
- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
- Construction Lien
- Cloud on Title
- What is the priority of a buyer of collateral that is subject to a security interest?
- What is required to be a buyer in the ordinary course of business?
- How does 9-320(b) protect consumers who purchase goods from other consumers?
- What is the Shelter Principle?
- What are the general Priority Rules for Conflicting security interests?
- Subordination Agreement
- Who has Priority in Proceeds from the sale of collateral?
- What is a secured party's priority in future advances to a debtor?
- What is the priority of a PMSI in goods (other than inventory and livestock)?
- What is the priority of a PMSI in inventory?
- What is the priority of conflicting PMSIs?
- What is the priority of security interests in fixtures?
- What is the scope of fixture priority rules?