Opinion ID: 2584079
Heading Depth: 1
Heading Rank: 4

Heading: accounts receivable as collateral other than inventory

Text: ¶ 7 Arvest argues that section 9-312(4) applies. Section 9-312(4) gives a PMSI holder in collateral other than inventory and in the collateral's proceeds priority over an earlier filed conflicting security interest if the PMSI is perfected at the time the debtor receives possession of the collateral or within ten (10) days thereafter. Because accounts receivable are intangible, a conflict arises over whether they can be possessed and, if they can be possessed, when possession occurs. ¶ 8 Even though the OCC does not explicitly define possession, it is implicit in Article 9 that possession means actual physical control. See id. at §§ 9-302-305; Central Washington Bank v. Mendelson-Zeller, Inc., 113 Wash.2d 346, 779 P.2d 697, 699 (1989); Jeanne L. Schroeder, Some Realism about Legal Surrealism, 37 Wm. & Mary L.Rev. 455, 489, 491 (1996). Because accounts receivable are intangibles, see Okla. Stat. tit. 12A, § 9-106 (1991), and incapable of being possessed, Central Washington Bank, 779 P.2d at 699, PMSIs in accounts receivable are not subject to section 9-312(4)'s super-priority status. ¶ 9 This result is consistent with the history of and current amendments to the OCC and the UCC. Traditionally the law addressed only PMSIs in goods. Grant Gilmore, The Purchase Money Priority, 76 Harv. L. Rev, 1333, 1372 (1963). In 1963, Grant Gilmore, one of the primary drafters of the UCC, stated that it is almost impossible to conceive of a situation, other than the kind which practitioners refer to as `academic,' in which intangible money claims could be made the subject of a purchase money transaction. Id. Then recent amendments, which are intended as declaratory unless a change has been clearly made, Okla. Stat. tit. 12A, § 11-107 (2001), clarify that section 9-312(4)'s super-priority status is not available for accounts receivable. Id. at § 1-9-324(a). ¶ 10 This result is also consistent with other provisions of the 1991 OCC addressing accounts receivable. Except for a de minimis exclusion, a security interest in accounts receivable could be perfected only by filing. Id. at § 9-302 (1991). It is illogical that the drafters of the UCC would give a super-priority to a PMSI in accounts receivable by possession when a security interest in accounts receivable can be perfected only by filing. In contrast, a security interest in goods can be perfected by possession, id. § 9-305, and a PMSI in goods can be subject to section 9-312(4)'s super-priority status. Id. at § 9-312(4). ¶ 11 Arvest argues that the comments to the UCC, the policies underlying the OCC and the UCC, comments of one of the UCC's drafters, and cases from other jurisdictions support a holding that a PMSI in accounts receivable may be subject to section 9-312(4)'s super-priority status. We are unaware of any case granting section 9-312(4)'s super-priority status to accounts receivable. Further none of the cases cited by Arvest have held that a PMSI in accounts receivable is subject to section 9-312(4)'s super-priority status. See First Interstate Bank of Utah v. IRS, 930 F.2d 1521 (10th Cir.1991) (Loans that were made to allow debtor to perform preexisting executory contracts could not create a PMSI. A PMSI in intangibles would be an extraordinary situation.); MBank Alamo Nat'l Ass'n v. Raytheon Co., 886 F.2d 1449, 1452 (5th Cir.1989) (Addressing a PMSI in inventory, the court held that a PMSI in inventory is limited to that inventory and to proceeds received on or before delivery.); TIFCO, Inc. v. U.S. Repeating Arms Company, 67 B.R. 990, 997 (Bkrtcy.D.Conn.1986) (The case involved unearned prepaid insurance premiums which were not governed by Article 9 of Maryland's Commercial Code.); Citizens Nat'l Bank of Denton v. Cockrell, 850 S.W.2d 462 (Tex.1993) (This case involved equipment, not accounts receivable. The court held that even though seller retained access to equipment, the buyer had physical control and, thus, possession.); Automated Bookbinding Services, Inc. v. Hans Mueller Corp., 471 F.2d 546, 552 (4th Cir.1972) (Regarding equipment, the Court held that a buyer receives possession on the date of delivery, not the date installation is completed.); Northwestern Nat'l Bank Southwest v. Lectro Systems, 262 N.W.2d 678, 680 (Minn.1977) (Collateral for purposes of a PMSI does not include the performance of a preexisting contract.) ¶ 12 Arvest's position would require that this Court define possession in a manner that is inconsistent the OCC's implicit meaning. The OCC provides two methods of notice of a security interest: one is physical possession, id. at § 9-305, and the other is constructive possession by filing. Id. at § 9-302. The OCC uses the term possession for physical possession, id. at § 9-305, and the term filing for constructive possession. Id. at § 9-302. Under Arvest's position, the terms would be synonymous.