To determine whether a PMSI or a blanket lien prevails, which factors should be analyzed?

To determine whether a PMSI or a blanket lien prevails, which factors should be analyzed?

• A. Is the transaction secured?
• B. Was the UCC filed within 20 days?
• C. Did the lessor pay for the majority of the equipment?
• D. All of the above

Answer: (D)

Focus on how priority between a purchase-money security interest (PMSI) and a blanket lien is established. A PMSI has priority only if there’s a secured transaction financing the acquisition of the equipment, the interest is properly perfected, and the financing statement is timely filed (the common rule being within 20 days after the debtor takes possession). The source of funding matters too: if the lessor financed most of the purchase price, that supports a true PMSI in the equipment; if the debtor paid most of the cost, the interest is more likely a general or blanket lien. Because all three factors—existence of a secured interest in the equipment, timely perfection, and who financed the purchase—interact to determine priority, evaluating all of them together is necessary.

Focus on how priority between a purchase-money security interest (PMSI) and a blanket lien is established. A PMSI has priority only if there’s a secured transaction financing the acquisition of the equipment, the interest is properly perfected, and the financing statement is timely filed (the common rule being within 20 days after the debtor takes possession). The source of funding matters too: if the lessor financed most of the purchase price, that supports a true PMSI in the equipment; if the debtor paid most of the cost, the interest is more likely a general or blanket lien. Because all three factors—existence of a secured interest in the equipment, timely perfection, and who financed the purchase—interact to determine priority, evaluating all of them together is necessary.