- 26.1 Accession, processing and commingling of goods
- 26.2 The difference between accession, commingling, processing and manufacture
- 26.3 Example of processing or manufacture by diagram
- 26.4 Accession of goods
- 26.5 Processing, comingling and manufacture of goods
- 26.6 Priority of competing security interests that each continue into the product or mass
- 26.7 Relationship between security interests over goods continuing into a product, and existing security interests that attach to the product
- 26.8 PMSIs continuing into product or mass retain their super priority
- 26.9 Proceeds of the product or mass
- 26.10 Identification of proceeds in ADI accounts
Accession and security interests in goods
The PPSA proceeds (a pun, sorry!) on the basis that when certain goods (say, a car engine) are affixed to or installed into other goods (say, a motor vehicle) where both goods retain their original identity, the two goods (the car and the engine) remain separate items of property.
Consistent with the PPSA’s treatment of accessions (the engine) and the product (the car) as separate items of property, a security interest that attached to the engine before it was installed in the car, or which attaches to the engine after it is installed in the car, can exist separately from a security interest in the product (the car itself).
Accession and priority
The timing of the accession (goods installed) and the perfection of security interests in the goods installed is important to determine priorities.
If the security interest in the accession (the engine) attached and was perfected before it was installed into the product (car), then it will defeat any security interest that attaches and is perfected over the product (the car including the engine), but only in relation to the engine1.
If the security interest in the accession (engine) attaches to the engine before it is installed into the product (car) but is not perfected before the accession (the engine) is installed in the product (car), then the engine security interest is, until perfected, vulnerable to being defeated by a person who either:
(a) buys the product (the car including the engine); or
(b) holds a perfected security interest in the product (the car including the engine)2 and makes new advances after the engine is installed into the car. Secured parties with perfected security interests over the product or mass, who make new advances after accessions are installed into the product but before security interests over the accessions are perfected, have priority for the new advances3.
If a security interest attaches to the accession (engine) after it is installed into the product (the car), then it will be defeated by another person who already has an interest (interest is defined in section 10 of the PPSA to include a right - it is very wide and could mean any right in the product (car) and not just a security interest) in the car (product) and who has not consented to the security interest in the accession4. Further, a security interest that attaches to the accession after it is installed in the product will also be defeated by a buyer of the product (the car) before the security interest in the accession is perfected5.
The accession rules mean that buyers of goods (the accession rules only apply to goods) need to be careful when buying expensive goods that may comprise several components (such as trucks or large items of equipment) over which there may be separate security interests. Buyers need to ensure that all components have the benefit of one of the ten (10) extinguishment rules, or otherwise take releases of security interests over all components, to ensure they buy free and clear of all security interests over the goods and all component parts of them.
Removal of accessions to enforce security
The PPSA permits a secured party who holds a security interest in an accession to remove the accession from the product, for example, for the purposes of enforcing the security interest. There are various rules about how the secured party may so remove accessions – see sections 92- 97.
