2006 Ohio Revised Code - 1309.325. (UCC 9-325) Priority of security interests in transferred collateral.

§ 1309.325. (UCC 9-325) Priority of security interests in transferred collateral.
 

(A)  Except as otherwise provided in division (B) of this section, a security interest created by a debtor is subordinate to a security interest in the same collateral created by another person if: 

(1) The debtor acquired the collateral subject to the security interest created by the other person; 

(2) The security interest created by the other person was perfected when the debtor acquired the collateral; and 

(3) There is no period thereafter when the security interest is unperfected. 

(B)  Division (A) of this section subordinates a security interest only if the security interest: 

(1) Otherwise would have priority solely under division (A) of section 1309.322 or section 1309.324 of the Revised Code; or 

(2) Arose solely under division (C) of section 1302.85 or division (E) of section 1310.54 of the Revised Code. 
 

HISTORY: 149 v S 74. Eff 7-1-2001.
 

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

 

Official Comment

1. Source. New. 

2. "Double Debtor" Problem. This section addresses the "double debtor" problem, which arises when a debtor acquires property that is subject to a security interest created by another debtor. 

3. Taking Subject to Perfected Security Interest. Consider the following scenario: 

Example 1: A owns an item of equipment subject to a perfected security interest in favor of SP-A. A sells the equipment to B, not in the ordinary course of business. B acquires its interest subject to SP-A's security interest. See sections 9-201 and 9-315(a)(1)(A). Under this section, if B creates a security interest in the equipment in favor of SP-B, SP-B's security interest is subordinate to SP-A's security interest, even if SP-B filed against B before SP-A filed against A, and even if SP-B took a purchase-money security interest. Normally, SP-B could have investigated the source of the equipment and discovered SP-A's filing before making an advance against the equipment, whereas SP-A had no reason to search the filings against someone other than its debtor, A. 

4. Taking Subject to Unperfected Security Interest. This section applies only if the security interest in the transferred collateral was perfected when the transferee acquired the collateral. See subsection (a)(2). If this condition is not met, then the normal priority rules apply. 

Example 2: A owns an item of equipment subject to an unperfected security interest in favor of SP-A. A sells the equipment to B, who gives value and takes delivery of the equipment without knowledge of the security interest. B takes free of the security interest. See section 9-317(b). If B then creates a security interest in favor of SP-B, no priority issue arises; SP-B has the only security interest in the equipment. 

Example 3: The facts are as in Example 2, except that B knows of SP-A's security interest and therefore takes the equipment subject to it. If B creates a security interest in the equipment in favor of SP-B, this section does not determine the relative priority of the security interests. Rather, the normal priority rules govern. If SP-B perfects its security interest, then, under section 9-322(a)(2), SP-A's unperfected security interest will be junior to SP-B's perfected security interest. The award of priority to SP-B is premised on the belief that SP-A's failure to file could have misled SP-B. 

5. Taking Subject to Perfected Security Interest that Becomes Unperfected. This section applies only if the security interest in the transferred collateral did not become unperfected at any time after the transferee acquired the collateral. See subsection (a)(3). If this condition is not met, then the normal priority rules apply. 

Example 4: As in Example 1, A owns an item of equipment subject to a perfected security interest in favor of SP-A. A sells the equipment to B, not in the ordinary course of business. B acquires its interest subject to SP-A's security interest. See sections 9-201 and 9-315(a)(1)(A). B creates a security interest in favor of SP-B, and SP-B perfects its security interest. This section provides that SP-A's security interest is senior to SP-B's. However, if SP-A's financing statement lapses while SP-B's security interest is perfected, then the normal priority rules would apply, and SP-B's security interest would become senior to SP-A's security interest. See sections 9-322(a)(2) and 9-515(c). 

6. Unusual Situations. The appropriateness of the rule of subsection (a) is most apparent when it works to subordinate security interests having priority under the basic priority rules of section 9-322(a) or the purchase-money priority rules of section 9-324. The rule also works properly when applied to the security interest of a buyer under section 2-711(3) or a lessee under section 2A-508(5). However, subsection (a) may provide an inappropriate resolution of the "double debtor" problem in some of the wide variety of other contexts in which the problem may arise. Although subsection (b) limits the application of subsection (a) to those cases in which subordination is known to be appropriate, courts should apply the rule in other settings, if necessary to promote the underlying purposes and policies of the Uniform Commercial Code. See section 1-102(1). 

Disclaimer: These codes may not be the most recent version. Ohio may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.