- 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
The PPSA is unclear but appears to permit security interests that continue into a product or mass to compete with other security interests that may attach to the product or mass, for instance, security interests that attach to after- acquired property granted by the owner of the product or mass.
For the purposes of competing against a security interest granted by the owner or manufacturer of a product and which attaches to a product under manufacture or upon creation (for example, the all-assets security interest granted by D to Bank A in the diagram example), the PPSA is unclear but it is likely that the priority time of security interests that continue into a product or mass is preserved (taken to be the same) against the product/ mass1. This appears to follow from the PPSA providing that perfection of security interests over goods that later become part of a product or mass is treated as perfection of the security interest against the product or mass itself2.
Example
Returning to the example and diagram above (paragraph 26.3.1), recall that there is a security interest in goods (the security interest of the paint supplier over the paint supplied to D) that is perfected, and assume has a priority time of day one. There is also a general security interest (all-assets security interest) granted by the owner of the product (cars) to Bank A over all present and after-acquired property. Assume that Bank A’s general security interest is registered and perfected on day two. The goods (paint) then become part of a product (the car).
Following the above analysis of the PPSA processing and comingling rules:
(a) the security interest of the paint supplier in the paint continues into the car, and can compete with the security interest of Bank A in the car; and
(b) the priority time of the paint supplier’s security interest in the goods (paint) is earlier and so defeats Bank A’s security interest in the car, regardless of whether the paint supplier’s security interest has PMSI status or not (see below). The priority of the paint supplier over Bank A is limited to the value of the goods (paint) on the day the goods become part of the product (the car)3.
If there are various security interests that continue into the car as the paint supplier’s security interest does, then Bank A’s security interest in the car could be significantly subordinated, depending on the respective priority times.
