Superpriority of Purchase Money Security Interests (UBE & Florida)

UCC Article 9 is tested more frequently than many would prefer and a key concept of the subject is the purchase money security interest ("PMSI"). This post will entirely focus on that concept.

A PMSI arises in two situations. The first is when the seller sells collateral to the debtor on credit and also reserves a security interest in the collateral. The second is when the creditor as a lender (often a bank) advances funds to allow the debtor to purchase the collateral and also takes a security interest in the collateral. If there are conflicting PMSIs, one with a PMSI as a seller will have priority over one with a PMSI as a lender.

Knowing the definition above is important but understanding the significance of these security interests is more important. PMSIs enjoy a "superpriority" which makes them superior even to prior perfected security interests in the same collateral provided that some other requirements are met. 

Once you understand the definition and the significance of PMSIs, it's then important to understand the specific rules that apply for certain types of collateral. 

Inventory:  A PMSI in inventory collateral has priority over conflicting security interests in the same inventory or proceeds of that inventory (chattel paper, instruments, or cash proceeds) if the PMSI is perfected at the time that the debtor gets possession of the inventory (filing must take place before the inventory is delivered). Further, any secured party who has perfected a security interest in the same inventory must receive written notification of the PMSI before the debtor receives possession of the inventory. The notification must state that the party providing notice expects to take a PMSI in the specifically named inventory. Might be noted that a similar rule applies to livestock collateral, but I haven't seen that one tested often if at all.

Goods Other Than Inventory:  A PMSI in goods other than inventory (for example, equipment) has priority over conflicting security interests in the same goods or in their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods. The key difference here is that the notice requirement for inventory is lacking for goods other than inventory. 

One final rule to keep in mind that involves PMSIs has more to do with perfecting the security interest than it has to do with priority over others who also have a security interest. A PMSI in consumer goods is automatically perfected. In other words, once a PMSI in consumer goods has attached, it is perfected.  There is no need to take any additional steps such as filing a financing statement or taking possession of the collateral which may be required for non-PMSIs. Of course, this also might play into a priority analysis since that automatic perfection could provide the secured party with priority over others who perfect their interest later.