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Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
Purchase-Money Priority in Inventory
9-324(b) provides for purchase money security interest in inventory. In order to qualify for PMSI priority in inventory, the secured transaction must meet the following requirements:
- 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.
- The secured party must provide authenticated notification to any holders of conflicting security interests in the debtors collateral prior to perfection.
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- The holder of the conflicting security interest must receive the notice within 5 years prior to the debtor obtaining possession of the collateral.
- The notification must state that the creditor intends to take a PMSI in the debtors inventory and it must describe the inventory.
9-324(b) also extends PMSI priority to identifiable proceeds from the sale of the collateral. Note, the priority in cash is limited if the cash is deposited in a deposit account under 9-327.