Also known as:PMSI in inventories · purchase money security interest in inventory · purchase-money security interest in inventory · PMSI inventory · purchase-money security interest inventory
Written by attorneys · grounded in primary & secondary sources — see below
A security interest in goods held for sale that secures an obligation incurred as part of the price of those goods or value enabling their acquisition. The interest extends to later inventory obligations to the same secured party when those obligations finance additional inventory purchases and the inventory serves as collateral. A consignor's retained interest in consigned goods is expressly treated as this form of security interest.
Sources & Authorities· 4 primary sources
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Course Outlines
How it applies
Common Examples
2
Inventory Supplier Claims Priority
Precision Tools delivered servers to Nimbus Cloud on open account and retained a security interest in the servers to secure the purchase price. Pacific Bank already held a perfected blanket lien on all of Nimbus Cloud's inventory. When Nimbus Cloud defaulted, Precision Tools had perfected its interest upon delivery and had sent the required signed notification to Pacific Bank before Nimbus Cloud took possession. Precision Tools therefore obtained priority in the servers over Pacific Bank's earlier lien.
Consignor Asserts PMSI Status
Prime Logistics consigned specialized equipment to Pavel Petrov under an agreement that retained title in Prime Logistics until sale. Pacific Bank held a prior perfected security interest in all of Pavel Petrov's existing and after-acquired inventory. After default, Prime Logistics claimed the consigned equipment. Because the arrangement qualified as a consignment, Prime Logistics's retained interest received purchase-money treatment in the equipment as inventory.
First National Bank in Munday v. Lubbock Feeders, L.P.200 S.W.3d 968 (Tex. Ct. App. 2006)
Common questions
Frequently Asked
4
When does a consignor's interest qualify as a PMSI in inventory?+
A consignor's security interest in goods delivered on consignment is expressly deemed a purchase-money security interest in inventory. This treatment applies even when payment terms are contingent on sale or when title remains with the consignor. The rule overrides the need to satisfy every element of the general purchase-money obligation definition.
Supporting sources
What limits the scope of PMSI status in inventory financing?+
PMSI treatment applies only to the extent the obligation finances acquisition of the collateral and the collateral actually secures that obligation. Combining purchase-money and non-purchase-money debt or collateral does not destroy the status for the qualifying portion. The limitation prevents automatic extension to all assets or all obligations of the debtor.
Supporting sources
How does the inventory PMSI priority rule differ from the rule for non-inventory goods?+
A perfected PMSI in inventory requires both timely perfection when the debtor receives possession and pre-possession notification to conflicting secured parties. The non-inventory rule allows perfection within twenty days after possession without the same notification requirement. Failure to meet either inventory condition defeats superpriority.
Supporting sources
Does a preexisting credit relationship prevent PMSI status for later consignments?+
No. The statutory deeming rule for consignments establishes PMSI status regardless of prior open-account dealings between the same parties. The rule focuses on the consignment transaction itself rather than the overall course of dealing.
Supporting sources
Secured TransactionsApplicability and definitions (§ 9-101, et seq.) · Priority of consignments (§§ 9-103, 9-324)UBEFoundational