Perfecting Purchase Money Security Interests in Consigned Inventory across Retail Channels
Perfecting consignment PMSI requires filing a UCC-1 and serving written notice to senior lenders before the retailer takes delivery to secure super-priority.
Commingled Goods
Meaning
Tangible personal property physically united with other goods in an industrial process or bulk storage arrangement loses its independent visual identity within the resulting product or mass. Commercial finance treats commingled goods as transformed units governed by Article 9 of the Uniform Commercial Code, where a security interest attached prior to combination survives into the aggregate whole. The principle governs bulk chemicals, grain silos, fluid packaging lines and polymer pellet blends where physical segregation becomes commercially impossible.
The legal boundary stops where goods remain mechanically detachable or visually distinct without causing physical destruction to the host property.
Security Transition
Perfection statutes automatically attach an existing floating lien to the finished mass whenever source raw materials lose their separate legal identity. If collateral undergoes processing that merges it into commingled goods, the creditor does not lose security rank merely because the constituent input can no longer be inspected independently. Priority transfers to the aggregate product proportionately according to the inventory cost ratio established at the moment of physical integration.
Multiple secured suppliers hold equal rank across the resulting volume based on their respective contributions.
Inventory Handling
Industrial bulk facilities blend constituent ingredients straight into common holding silos upon customs release. Liquid petrochemicals, resins and dry agricultural commodities commingle instantly when tankers discharge into central terminal tanks, preventing segregated batch traceability. Material balance accounting replaces serial registration on distribution floor manifests.
Handlers govern title retention by certifying input mass against output delivery bills of lading.
Dispute Mechanics
Conflict arises during buyer insolvency when multiple purchase money security interest holders assert claims over an undersized terminal reserve. Liquidators distribute commingled goods proceeds pro rata using verified delivery tickets to calculate individual input ratios. Creditors whose supplies cannot be proven to have entered the specific blended lot forfeit collateral recovery rights.
Conflicting supplier liens rank equally regardless of initial perfection dates.