2006 Ohio Revised Code - 1309.323. (UCC 9-323) Future advances.

§ 1309.323. (UCC 9-323) Future advances.
 

(A)  Except as otherwise provided in division (C) of this section, for purposes of determining the priority of a perfected security interest under division (A)(1) of section 1309.322 of the Revised Code, perfection of the security interest dates from the time an advance is made to the extent that the security interest secures an advance that: 

(1) Is made while the security interest is perfected only: 

(a) Under section 1309.309 of the Revised Code when it attaches; or 

(b) Temporarily under division (E), (F), or (G) of section 1309.312 of the Revised Code. 

(2) Is not made pursuant to a commitment entered into before or while the security interest is perfected by a method other than under section 1309.309 or division (E), (F), or (G) of section 1309.312 of the Revised Code. 

(B)  Except as otherwise provided in division (C) of this section, a security interest is subordinate to the rights of a person that becomes a lien creditor to the extent that the security interest secures advances made more than forty-five days after the person becomes a lien creditor unless the advance is made: 

(1) Without knowledge of the lien; or 

(2) Pursuant to a commitment entered into without knowledge of the lien. 

(C)  Divisions (A) and (B) of this section do not apply to a security interest held by a secured party that is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor. 

(D)  Except as otherwise provided in division (E) of this section, a buyer of goods other than a buyer in ordinary course of business takes free of a security interest to the extent that it secures advances made after the earlier of: 

(1) The time the secured party acquires knowledge of the buyer's purchase; or 

(2) Forty-five days after the purchase. 

(E)  Division (D) of this section does not apply if the advance is made pursuant to a commitment entered into without knowledge of the buyer's purchase and before the expiration of the forty-five-day period. 

(F)  Except as otherwise provided in division (G) of this section, a lessee of goods, other than a lessee in ordinary course of business, takes the leasehold interest free of a security interest to the extent that it secures advances made after the earlier of: 

(1) The time the secured party acquires knowledge of the lease; or 

(2) Forty-five days after the lease contract becomes enforceable. 

(G)  Division (F) of this section does not apply if the advance is made pursuant to a commitment entered into without knowledge of the lease and before the expiration of the forty-five-day period. 
 

HISTORY: 149 v S 74. Eff 7-1-2001.
 

The effective date is set by section 4 of SB 74. 

 

Official Comment

1. Source. Former sections 2A-307(4), 9-301(4), 9-307(3), and 9-312(7). 

2. Scope of This Section. A security agreement may provide that collateral secures future advances. See section 9-204(c). This section collects all of the special rules dealing with the priority of advances made by a secured party after a third party acquires an interest in the collateral. Subsection (a) applies when the third party is a competing secured party. It replaces and clarifies former section 9-312(7). Subsection (b) deals with lien creditors and replaces former section 9-301(4). Subsections (d) and (e) deal with buyers and replace former section 9-307(3). Subsections (f) and (g) deal with lessees and replace former section 2A-307(4). 

3. Competing Security Interests. Under a proper reading of the first-to-file-or-perfect rule of section 9-322(a)(1) (and former section 9-312(5)), it is abundantly clear that the time when an advance is made plays no role in determining priorities among conflicting security interests except when a financing statement was not filed and the advance is the giving of value as the last step for attachment and perfection. Thus, a secured party takes subject to all advances secured by a competing security interest having priority under section 9-322(a)(1). This result generally obtains regardless of how the competing security interest is perfected and regardless of whether the advances are made "pursuant to commitment" (section 9-102). Subsection (a) of this section states the only other instance when the time of an advance figures in the priority scheme in section 9-322: When the security interest is perfected only automatically under section 9-309 or temporarily under section 9-312(e), (f), or (g), and the advance is not made pursuant to a commitment entered into while the security interest was perfected by another method. Thus, an advance has priority from the date it is made only in the rare case in which it is made without commitment and while the security interest is perfected only temporarily under section 9-312. 

The new formulation in subsection (a) clarifies the result when the initial advance is paid and a new ("future") advance is made subsequently. Under former section 9-312(7), the priority of the new advance turned on whether it was "made while a security interest is perfected." This section resolves any ambiguity by omitting the quoted phrase. 

Example 1: On February 1, A makes an advance secured by machinery in the debtor's possession and files a financing statement. On March 1, B makes an advance secured by the same machinery and files a financing statement. On April 1, A makes a further advance, under the original security agreement, against the same machinery. A was the first to file and so, under the first-to-file-or-perfect rule of section 9-322(a)(1), A's security interest has priority over B's, both as to the February 1 and as to the April 1 advance. It makes no difference whether A knows of B's intervening advance when A makes the second advance. Note that, as long as A was the first to file or perfect, A would have priority with respect to both advances if either A or B had perfected by taking possession of the collateral. Likewise, A would have priority if A's April 1 advance was not made under the original agreement with the debtor, but was under a new agreement. 

Example 2: On October 1, A acquires a temporarily perfected (20-day) security interest, unfiled, in a negotiable document in the debtor's possession under section 9-312(e) or (f). The security interest secures an advance made on that day as well as future advances. On October 5, B files and thereby perfects a security interest that previously had attached to the same document. On October 8, A makes an additional advance. On October 10, A files. Under section 9-322(a)(1), because A was the first to perfect and maintained continuous perfection or filing since the start of the 20-day period, A has priority, even after the 20-day period expires. See section 9-322, comment 4, example 3. However, under this section, for purposes of section 9-322(a)(1), to the extent A's security interest secures the October 8 advance, the security interest was perfected on October 8. Inasmuch as B perfected on October 5, B has priority over the October 8 advance. 

The rule in subsection (a) is more liberal toward the priority of future advances than the corresponding rules applicable to intervening lien creditors (subsection (b)), buyers (subsections (d) and (e)), and lessees (subsections (f) and (g)). 

4. Competing Lien Creditors. Subsection (b) replaces former section 9-301(4) and addresses the rights of a "lien creditor," as defined in section 9-102. Under section 9-317(a)(2), a  security interest is senior to the rights of a person who becomes a lien creditor, unless the person becomes a lien creditor before the security interest is perfected and before a financing statement covering the collateral is filed and Sections 9-203(b)(3) is satisfied. Subsection (b) of this section provides that a security interest is subordinate to those rights to the extent the the specified circumstances occur. Subsection (b) does not elevate the priority of a security interest that is subordinate to the rights of a lien creditor under Section 9-317(a)(2); it only subordinates. 

As under former section 9-301(4), a secured party's knowledge does not cut short the 45-day period during which future advances can achieve priority over an intervening lien creditor's interest. Rather, because of the impact of the rule in subsection (b) on the question whether the security interest for future advances is "protected" under section 6323(c)(2) and (d) of the Internal Revenue Code as amended by the Federal Tax Lien Act of 1966, the priority of the security interest for future advances over a lien creditor is made absolute for 45 days regardless of knowledge of the secured party concerning the lien. If, however, the advance is made after the 45 days, the advance will not have priority unless it was made or committed without knowledge of the lien. 

5. Sales of Receivables; Consignments. Subsections (a) and (b) do not apply to outright sales of accounts, chattel paper, payment intangibles, or promissory notes, nor do they apply to consignments. 

6. Competing Buyers and Lessees. Under subsections (d) and (e), a buyer will not take subject to a security interest to the extent it secures advances made after the secured party has knowledge that the buyer has purchased the collateral or more than 45 days after the purchase unless the advances were made pursuant to a commitment entered into before the expiration of the 45-day period and without knowledge of the purchase. Subsections (f) and (g) provide an analogous rule for lessees. Of course, a buyer in ordinary course who takes free of the security interest under section 9-320 and a lessee in ordinary course who takes free under section 9-321 are not subject to any future advances. Subsections (d) and (e) replace former section 9-307(3), and subsections (f) and (g) replace former section 2A-307(4). No change in meaning is intended.