2006 Ohio Revised Code - 1309.709. (UCC 9-709) Priority.

§ 1309.709. (UCC 9-709) Priority.
 

(A)  This chapter determines the priority of conflicting claims to collateral. However, if the relative priorities of the claims were established before July 1, 2001, the law in effect at the time the priorities of the claims were established determines priority. 

(B)  For purposes of division (A) of section 1309.322 of the Revised Code, as it exists on July 1, 2001, the priority of a security interest that becomes enforceable under section 1309.203 of the Revised Code, as it exists on July 1, 2001, dates from July 1, 2001, if the security interest is perfected under this chapter by the filing of a financing statement before July 1, 2001, that would not have been effective to perfect the security interest under the law in effect at the time of the filing. This division does not apply to conflicting security interests each of which is perfected by the filing of such a financing statement. 
 

HISTORY: 149 v S 74. Eff 7-1-2001.
 

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

 

Official Comment

1. Law Governing Priority. Ordinarily, this article determines the priority of conflicting claims to collateral. However, when the relative priorities of the claims were established before July 1, 2001, former article 9 governs. 

Example 1: In 1999, SP-1 obtains a security interest in a right to payment for goods sold ("account"). SP-1 fails to file a financing statement. This Article takes effect on July 1, 2001. Thereafter, on August 1, 2001, D creates a security interest in the same account in favor of SP-2, who files a financing statement. This Article determines the relative priorities of the claims. SP-2's security interest has priority under section 9-322(a)(1). 

Example 2: In 1999, SP-1 obtains a security interest in a right to payment for goods sold ("account"). SP-1 fails to file a financing statement. In 2000, D creates a security interest in the same account in favor of SP-2, who likewise fails to file a financing statement. This Article takes effect on July 1, 2001. Because the relative priorities of the security interests were established before the effective date of this Article, former Article 9 governs priority, and SP-1's security interest has priority under former section 9-312(5)(b). 

Example 3: The facts are as in Example 2, except that, on August 1, 2001, SP-2 files a proper financing statement under this article. Until August 1, 2001, the relative priorities of the security interests were established before the effective date of this Article, as in Example 2. However, by taking the affirmative step of filing a financing statement, SP-2 established anew the relative priority of the conflicting claims after the effective date. Thus, this article determines priority. SP-2's security interest has priority under section 9-322(a)(1). 

As Example 3 illustrates, relative priorities that are "established" before the effective date do not necessarily remain unchanged following the effective date. Of course, unlike priority contests among unperfected security interests, some priorities are established permanently, e.g., the rights of a buyer of property who took free of a security interest under former article 9. 

One consequence of the rule in subsection (a) is that the mere taking effect of this article does not of itself adversely affect the priority of conflicting claims to collateral. 

Example 4: In 1999, SP-1 obtains a security interest in a right to payment for lottery winnings (a "general intangible" as defined in former Article 9 but an "account" as defined in this Article). SP-1's security interest is unperfected because its filed financing statement covers only "accounts." In 2000, D creates a security interest in the same right to payment in favor of SP-2, who files a financing statement covering "accounts and general intangibles." Before this Article takes effect on July 1, 2001, SP-2's perfected security interest has priority over SP-1's unperfected security interest under former section 9-312(5). Because the relative priorities of the security interests were established before the effective date of this Article, former Article 9 continues to govern priority  after this Article takes effect. Thus, SP-2's priority is not adversely affected by this Article's having taken effect. 

Note that were this article to govern priority, SP-2 would become subordinated to SP-1 under section 9-322(a)(1), even though nothing changes other than this article's having taken effect. Under section 9-704, SP-1's security interest would become perfected; the financing statement covering "accounts" adequately covers the lottery winnings and complies with the other perfection requirements of this article, e.g., it is filed in the proper office. 

Example 5: In 1999, SP-1 obtains a security interest in a right to payment for lottery winnings - a "general intangible" (as defined under former article 9). SP-1's security interest is unperfected because its filed financing statement covers only "accounts." In 2000, D creates a security interest in the same right to payment in favor of SP-2, who makes the same mistake and also files a financing statement covering only "accounts." Before this article takes effect on July 1, 2001, SP-1's unperfected security interest has priority over SP-2's unperfected security interest, because SP-1's security interest was the first to attach. See former section 9-312(5)(b). Because the relative priorities of the security interests were established before the effective date of this Article, former Article 9 continues to govern priority after this Article takes effect. Although section 9-704 makes both security interests perfected for purposes of this article, both are unperfected under former article 9, which determines their relative priorities. 

2. Financing Statements Ineffective Under Former Article 9 but Effective Under This Article. If this article determines priority, subsection (b) may apply. It deals with the case in which a filing that occurs before the effective date of this Article would be ineffective to perfect a security interest under former article 9 but effective under this article. For purposes of section 9-322(a), the priority of a security interest that attaches on or after July 1, 2001, and is perfected in this manner dates from the time this Article takes effect. 

Example 6: In 1999, SP-1 obtains a security interest in D's existing and after-acquired instruments and files a financing statement covering "instruments." In 2000, D grants a security interest in its existing and after-acquired accounts in favor of SP-2, who files a financing statement covering "accounts." After this Article takes effect on July 1, 2001, one of D's account debtors gives D a negotiable note to evidence its obligation to pay an overdue account. Under the first-to-file-or-perfect rule in section 9-322(a), SP-1 would have priority in the instrument, which constitutes SP-2's proceeds. SP-1's filing in 1999 was earlier than SP-2's in 2000. However, subsection (b) provides that, for purposes of section 9-322(a), SP-1's priority dates from the time this article takes effect (July 1, 2001). Under section 9-322(b), SP-2's priority with respect to the proceeds (instrument) dates from its filing as to the original collateral (accounts). Accordingly, SP-2's security interest would be senior. 

Subsection (b) does not apply to conflicting security interests each of which is perfected by a pre-effective-date filing that was not effective under former article 9 but is effective under this article. 

Example 7: In 1999, SP-1 obtains a security interest in D's existing and after-acquired instruments and files a financing statement covering "instruments." In 2000, D grants a security interest in its existing and after-acquired instruments in favor of SP-2, who files a financing statement covering "instruments." After this article takes effect on July 1, 2001, one of D's account debtors gives D a negotiable note to evidence its obligation to pay an overdue account. Under the first-to-file-or-perfect rule in section 9-322(a), SP-1 would have priority in the instrument. Both filings are effective under this article, see section 9-705(b), and SP-1's filing in 1999 was earlier than SP-2's in 2000. Subsection (b) does not change this result.