1. How does your comment change the date the debtor receives possession? That date is not a floating date, but a date certain. For example, if I have some equipment delivered to “try it out” and one month later decided to purchase the equipment, what is the date the equipment was delivered. Was it when I took possession of the equipment a month ago, or was it when I decided to purchase the equipment? When did I decide to purchase the equipment? Since it is the burden of the bank claiming a PMSI to prove it, how do you know when I made up my mind to purchase the equipment? It may have been three weeks ago. Does that mean that I received possession three weeks ago? Or was it when I purchased the equipment. How is this date determined in court? Date I paid? Date I signed the bill of sale? The date I issued a Purchase order? The date I called the seller and told them I’m keeping the equipment? The date they invoiced me?

2. If you define the date the COLLATRERAL was delivered as the date that a security interest attaches, there would be no need for the 20 day rule and no lender would ever make a loan secured by goods because someone else could jump ahead with a claim of PMSI. Remember, as you quoted, it isn’t collateral until there is a security interest.

3. Now, whether or not a lease is an attempt to create a security interest (which is subject to Article 9) would take hours of discussion. BOL is not the proper forum. If you have the time and don’t mind taking a little Tylenol to suppress your headache, review Section 1-201 and locate the definition of “security interest.” Also read the two pages of comments regarding this subject. You will discover that a lease may be an attempt to create a security interest and therefore Article 9 priority rules would apply. On the other hand, it may be, just a lease. The terms of the lease agreement could control. Does a lessor ever file a UCC1 financing statement? Look at the form, item5, first box.

4. Article 9 requires that the debtor have some rights in the collateral. That does not always mean ownership rights. This confuses many who study Article 9. Did you notice the requirement of Article 9 when property is consigned goods? The owner of the property files a financing statement and lists their name as the secured party and the one in possession of the goods as the debtor. They may or may not check the second box on a UCC1 in item 5. Is there a security interest between the consignor and the consignee? Yet Article 9 applies. It is best, when referring to the debtor having rights in the collateral, to think of these rights as rights to possess and not necessarily ownership rights. There is much case law on this subject.

(a) I check to see if I can meet the filing requirements for PMSI,
(b) I review to see if there is a purchase involved that I can prove,
(c) I make certain to claim PMSI in the security agreement,
(d) I describe the collateral using a specific listing with no errors, and
(e) I make certain that the bank can prove that the debtor used the loan proceeds to purchase the equipment.

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FWIW Tom, I like where you end up but not how you get there. Okie Banker's example is from Official Comment 3 of 9-324. It's pretty clear from the Official Comment that when the lessee exercises an option to purchase on credit from the lessor, the lessor has 20 days from the date the option is exercised (the date it becomes collateral) to perfect and retain PMSI status. I don't see any reason why this logic would not extend to Linda O's scenario. Assuming the original lease is a true lease, the 20 days begins to run from the day the equipment becomes collateral. They could advance the funds now, perfect within 20 days, and have PMSI priority.

Two problems with that idea make it a far better decision to get the subordination agreement: 1) if the original lease is not a "true lease," then Linda O may not have a PMSI at all; and 2) even if Linda O has a PMSI, if the other lender wants to dispute the issue, it will take time and money to resolve. Why not avoid that possibility.

Regarding your point #2, I don't think that's really a huge problem. Remember, someone can only "jump ahead" with a PMSI claim if: a) they are selling new goods to the debtor or financing the debtor's purchase of the new goods; or b) they are financing the purchase of goods the debtor was previously leasing or borrowing from someone else. Thus, a prior lender with a blanket lien never had a first priority security interest in the goods, either because the debtor never had them or because the blanket security interest is automatically subordinate to the lessor's interest. Either way, the blanket lienholder was never counting on a first priority security interest in those specific goods.

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Yeah - what he said!

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the 20-day period in subsection (a) does not commence until the goods become "collateral" (defined in Section 9-102), i.e. until they are subject to a security interest.

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but it does not state that it is limited to that situation only. If it works that way for the lessor/seller, there's no reason it shouldn't work the same way for another lender that makes a purchase money loan to fund the debtor's exercise of the purchase option.

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you may win, on the other hand……

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