North Carolina § 25-9-317 - Interests that take priority over or take free of security interest or agricultural lien.

§ 25-9-317. Interests that take priority over or take free of security interest or agricultural lien.

Conflicting security interests and rights of lien creditors. - A security interest or agricultural lien is subordinate to the rights of: A person entitled to priority under G.S. 25-9-322; and Except as otherwise provided in subsection (e) of this section, a person that becomes a lien creditor before the earlier of the time: The security interest or agricultural lien is perfected; or One of the conditions specified in G.S. 25-9-203(b)(3) is met and a financing statement covering the collateral is filed. Buyers that receive delivery. - Except as otherwise provided in subsection (e) of this section, a buyer, other than a secured party, of tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest or agricultural lien if the buyer gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected. Lessees that receive delivery. - Except as otherwise provided in subsection (e) of this section, a lessee of goods takes free of a security interest or agricultural lien if the lessee gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected. Licensees and buyers of certain collateral. - A licensee of a general intangible or a buyer, other than a secured party, of collateral other than tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest if the licensee or buyer gives value without knowledge of the security interest and before it is perfected. Purchase-money security interest. - Except as otherwise provided in G.S. 25-9-320 and G.S. 25-9-321, if a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the security interest attaches and the time of filing. History (1945, c. 182, s. 4; c. 196, s. 4; 1955, c. 386, s. 2; 1961, c. 574; 1965, c. 700, s. 1; 1975, c. 862, s. 7; 1979, c. 404, s. 1; 1997-181, s. 8; 2000-169, s. 1; 2006-112, s. 53; 2012-70, s. 6.) AMENDED OFFICIAL COMMENT (2010 EDITION) 1. Source. Former sections 2A-307(2) and 9-301. 2. Scope of This Section. As did former section 9-301, this section lists the classes of persons who take priority over, or take free of, an unperfected security interest. Section 9-308 explains when a security interest or agricultural lien is "perfected." A security interest that has attached (see section 9-203) but as to which a required perfection step has not been taken is "unperfected." Certain provisions have been moved from former section 9-301. The definition of "lien creditor" now appears in section 9-102, and the rules governing priority in future advances are found in section 9-323. 3. Competing Security Interests. Section 9-322 states general rules for determining priority among conflicting security interests and refers to other sections that state special rules of priority in a variety of situations. The security interests given priority under section 9-322 and the other sections to which it refers take priority in general even over a perfected security interest. A fortiori they take priority over an unperfected security interest. 4. Filed but Unattached Security Interest vs. Lien Creditor. Under former section 9-301(1)(b), a lien creditor's rights had priority over an unperfected security interest. Perfection required attachment (former section 9-303), and attachment required the giving of value (former section 9-203). It followed that, if a secured party had filed a financing statement but the debtor had not entered into a security agreement and value had not yet been given, an intervening lien creditor whose lien arose after filing but before attachment of the security interest acquired rights that are senior to those of the secured party who later gives value. This result comported with the nemo dat concept: When the security interest attached, the collateral was already subject to the judicial lien. On the other hand, this approach treated the first secured advance differently from all other advances, even in circumstances in which a security agreement covering the collateral had been entered into before the judicial lien attached. The special rule for future advances in former section 9-301(4) (substantially reproduced in section 9-323(b)) afforded priority to a discretionary advance made by a secured party within 45 days after the lien creditor's rights arose as long as the secured party was "perfected" when the lien creditor's lien arose - i.e., as long as the advance was not the first one and an earlier advance had been made. Subsection (a)(2) revises former section 9-301(1)(b) and, in appropriate cases, treats the first advance the same as subsequent advances. More specifically, a judicial lien that arises after the security-agreement condition of section 9-203(b)(3) is satisfied and a financing statement is filed, but before the security interest attaches and becomes perfected, is subordinate to all advances secured by the security interest, even the first advance, except as otherwise provided in section 9-323(b). However, if the security interest becomes unperfected (e.g., because the effectiveness of the filed financing statement lapses) before the judicial lien arises, the security interest is subordinate. If a financing statement is filed but a security interest does not attach, then no priority contest arises. The lien creditor has the only enforceable claim to the property. 5. Security Interest of Consignor or Receivables Buyer vs. Lien Creditor. Section 1-201(b)(35) defines "security interest" to include the interest of most true consignors of goods and the interest of most buyers of certain receivables (accounts, chattel paper, payment intangibles, and promissory notes). A consignee of goods or a seller of accounts or chattel paper each is deemed to have rights in the collateral which a lien creditor may reach, as long as the competing security interest of the consignor or buyer is unperfected. This is so even though, as between the consignor and the debtor-consignee, the latter has only limited rights, and, as between the buyer and debtor-seller, the latter does not have any rights in the collateral. See sections 9-318 (seller) and 9-319 (consignee). Security interests arising from sales of payment intangibles and promissory notes are automatically perfected. See section 9-309. Accordingly, a subsequent judicial lien always would be subordinate to the rights of a buyer of those types of receivables. 6. Purchasers Other Than Secured Parties. Subsections (b), (c), and (d) afford priority over an unperfected security interest to certain purchasers (other than secured parties) of collateral. They derive from former sections 9-301(1)(c), 9-301(1)(d), and 9-307(2). Former section 9-301(1)(c) and (1)(d) provided that unperfected security interests are "subordinate" to the rights of certain purchasers. But, as former comment 9 suggested, the practical effect of subordination in this context is that the purchaser takes free of the security interest. To avoid any possible misinterpretation, subsections (b) and (d) of this section use the phrase "takes free." Subsection (b) governs goods, as well as intangibles of the type whose transfer is effected by physical delivery of the representative piece of paper (tangible chattel paper, documents, instruments, and security certificates). To obtain priority, a buyer must both give value and receive delivery of the collateral without knowledge of the existing security interest and before perfection. Even if the buyer gave value without knowledge and before perfection, the buyer would take subject to the security interest if perfection occurred before physical delivery of the collateral to the buyer. Subsection (c) contains a similar rule with respect to lessees of goods. Note that a lessee of goods in ordinary course of business takes free of all security interests created by the lessor, even if perfected. See section 9-321. Normally, there will be no question when a buyer of chattel paper, documents, instruments, or security certificates "receives delivery" of the property. See section 1-201 (defining "delivery"). However, sometimes a buyer or lessee of goods, such as complex machinery, takes delivery of the goods in stages and completes assembly at its own location. Under those circumstances, the buyer or lessee "receives delivery" within the meaning of subsections (b) and (c) when, after an inspection of the portion of the goods remaining with the seller or lessor, it would be apparent to a potential lender to the seller or lessor that another person might have an interest in the goods. The rule of subsection (b) obviously is not appropriate where the collateral consists of intangibles and there is no representative piece of paper whose physical delivery is the only or the customary method of transfer. Therefore, with respect to such intangibles (including accounts, electronic chattel paper, general intangibles, and investment property other than certificated securities), subsection (d) gives priority to any buyer who gives value without knowledge, and before perfection, of the security interest. A licensee of a general intangible takes free of an unperfected security interest in the general intangible under the same circumstances. Note that a licensee of a general intangible in ordinary course of business takes rights under a nonexclusive license free of security interests created by the licensor, even if perfected. See section 9-321. Unless section 9-109 excludes the transaction from this article, a buyer of accounts, chattel paper, payment intangibles, or promissory notes is a "secured party" (defined in section 9-102), and subsections (b) and (d) do not determine priority of the security interest created by the sale. Rather, the priority rules generally applicable to competing security interests apply. See section 9-322. 7. Agricultural Liens. Subsections (a), (b), and (c) subordinate unperfected agricultural liens in the same manner in which they subordinate unperfected security interests. 8. Purchase-Money Security Interests. Subsection (e) derives from former section 9-301(2). It provides that, if a purchase-money security interest is perfected by filing no later than 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of buyers, lessees, or lien creditors which arise between the time the security interest attaches and the time of filing. Subsection (e) differs from former section 9-301(2) in two significant respects. First, subsection (e) protects a purchase-money security interest against all buyers and lessees, not just against transferees in bulk. Second, subsection (e) conditions this protection on filing within 20, as opposed to ten, days after delivery. Section 9-311(b) provides that compliance with the perfection requirements of a statute or treaty described in section 9-311(a) "is equivalent to the filing of a financing statement." It follows that a person who perfects a security interest in goods covered by a certificate of title by complying with the perfection requirements of an applicable certificate-of-title statute "files a financing statement" within the meaning of subsection (e). Transition Provisions. - For transition provisions related to the 2010 amendments to Article 9 by Session Laws 2012-70, see the Appendix following Part 7 at the end of this Article. Session Laws 2012-70, s. 26(a), (b), provides: "(a) Pre-Effective-Date Transactions or Liens. - Except as otherwise provided in Part II of this act, this act applies to a transaction or lien within its scope, even if the transaction or lien was entered into or created before this act becomes effective [July 1, 2013]. "(b) Pre-Effective-Date Proceedings. - This act does not affect an action, case, or proceeding commenced before this act becomes effective [July 1, 2013]." Editor's Note. - Session Laws 2012-70, s. 27, provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the 2010 Amendments to Article 9 of the Uniform Commercial Code and all explanatory comments of the drafters of this act as the Revisor may deem appropriate." The Revision of Uniform Commercial Code Article 9 - Secured Transactions was drafted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute on April 27, 2011. The Official Commentary for the 2010 revision are copyrighted 2010 by The American Law Institute and National Conference of Commissioners on Uniform State Laws. The affected portions of the Official Comment to this section have been set out at this section with the appropriate amendments. Effect of Amendments. - Session Laws 2006-112, s. 53, effective October 1, 2006, inserted "tangible" preceding "documents," in subsection (b); and inserted "electronic documents," in subsection (d). Session Laws 2012-70, s. 6, effective July 1, 2013, in subsection (b), substituted "certificated security" for "security certificate"; in subsection (d), substituted "collateral other than tangible chattel paper, tangible documents, goods, instruments, or" for "accounts, electronic chattel paper, electronic documents, general intangibles, or investment property other than" preceding "a certificated security." See note for Transition Provisions governing these amendments.