Under what circumstance may a purchase money security interest (PMSI) take priority over prior perfection?

A purchase money security interest (PMSI) may take priority over prior perfected security interests under specific conditions. When a PMSI is perfected within a certain time frame after it attaches to the collateral, it can establish priority over other security interests that were perfected before it.

In the context of a PMSI, the relevant period for perfection is typically within 20 days following the debtor's acquisition of the collateral. This unique provision recognizes that a PMSI, which is a security interest granted to a seller of goods or a lender who finances the purchase of goods, should maintain a priority status to encourage lending for the purchase of goods. Thus, as long as the PMSI is properly perfected within this window, it will take precedence over previously perfected interests, thereby providing protection to the seller or lender.

This framework is grounded in the Uniform Commercial Code (UCC), which governs secured transactions and outlines the rights and priorities of secured parties in relation to the interests of other creditors and interest holders.