When Does a Purchase Money Security Interest Trump an Existing UCC-1 Blanket Asset Lien?
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When a Purchase Money Security Interest (PMSI) trumps an existing UCC-1 blanket asset lien depends upon whether the creditor perfected its PMSI during the required time period under Florida law in order to receive priority status over previously recorded blanket liens. Under Florida law, that priority period is within twenty days of the collateral being delivered to the debtor. Fla. Stat. § 679.324(1) (2012). If the creditor fails to perfect its PMSI during the statutorily provided period, it cannot gain priority status over another creditor’s previously perfected blanket security interest. In re Alphatech Systems, Inc., 317 F.3d 1267, 1269 (11th Cir. 2003). This Blog post seeks to analyze those circumstances where a lender seeks to prime an existing UCC-1 with their PMSI.
A PMSI exists when a creditor extends credit to a debtor to purchase a specific item, such as goods or software. Fla. Stat. § 679.1031(1) (2012). In that situation, those goods and/or software become collateral for the creditor’s PMSI. A PMSI creditor can ensure its interest in that specific piece of collateral has priority over all other creditors’ claims, even those creditors whose liens are already perfected, as long as it perfects its PMSI in a timely manner. See Fla. Stat. § 679.324(1) (2012). The policy behind this ability of PMSI creditors to trump previously perfected liens is to help “facilitate business transactions by allowing the debtor to obtain immediate possession of the needed goods without requiring the secured party to check on prior filings.” ITT Indus. Credit Co. v. Regan, 487 So.2d 1047, 1050 (Fla. 1986).
The statutorily provided time period for a creditor to perfect its PMSI in order to gain priority over previously perfected liens used to be fifteen days under § 679.312, Florida Statutes; however, that law was repealed and replaced in 2002 with § 679.324, Florida Statutes, which expanded the time period to twenty days. If the PMSI creditor fails to perfect its PMSI within that statutorily provided period, its interest will not have priority over a previously perfected blanket lien. In re Alphatech, 317 F.3d 1267, 1269 (11th Cir. 2003); see also ITT Indus. Credit Co., 487 So.2d at 1049 (The holder of a PMSI has priority over all other security interests in the same collateral “provided the purchase money interest is perfected by filing within [the] designated period after the debtor takes possession of the goods.”).
The Eleventh Circuit, in the case of In re Alphatech, applied this statutory requirement to the detriment of a PMSI creditor. 317 F.3d 1267 (11th Cir. 2003). In that case, one creditor, United Financial Group (“United”), held a blanket security interest issued by the debtor after United extended the debtor a general line of credit. Id. at 1268. After United perfected its blanket security interest, the debtor received additional financing from a second creditor, Textron Financial Corp. (“Textron”), to secure its purchase of a specific piece of equipment. Id. Textron, therefore, became a PMSI creditor in regards to that specific piece of equipment and that equipment became Textron’s collateral. Id. The Eleventh Circuit noted that the Florida Statutes require the PMSI creditor to perfect its PMSI within fifteen days of the collateral being delivered to the debtor. Id. (Emphasis added) (This case was prior to the Florida Statutes changing the time period to twenty days in 2002). Specifically, the collateral was delivered to the debtor on December 31, 1998 and Textron did not perfect its PMSI until February 12, 1999, which was forty-three days later. Id. at 1269. The Eleventh Circuit held that because Textron failed to properly perfect its PMSI within the statutorily provided period, it did not gain priority status over United’s previously perfected blanket security interest. Id.
In ITT Indus. Credit Co. v. Regan, one creditor (Regan) held a mortgage and security agreement on hotel property which granted to Regan a blanket interest in the personal property and fixtures on the real property. 487 So.2d at 1048. Another creditor (ITT) extended credit to debtor in order for debtor to purchase computer equipment. Id. at 1049. Regan sought to foreclose his mortgage on the hotel property and alleged that his interest in the after-acquired computer equipment was superior to ITT’s PMSI in the computer equipment. Id. The Florida Supreme Court, in answering the question certified to it, explained the law in Florida is that one creditor’s blanket interest in a PMSI creditor’s collateral, through a previously perfected blanket lien, is only superior to the PMSI creditor if that creditor fails to perfect its PMSI within the statutorily provided period. Id. at 1050.
In conclusion, a PMSI creditor’s lien can receive priority status over a previously perfected blanket lien, but only if the PMSI creditor perfects its interest within the statutorily provided period of twenty days from the date in which the collateral was delivered to the debtor.