PPSA & The 'All Monies' Clause

Earlier today I was asked the following question by one of my colleagues:

If a client [a supplier] has a customer that has goods on their floor that HAVE been paid for, but owes them for goods that have not been paid for, but since used / on-sold  can they go in and get the paid for goods?

Our client’s rights in this begin with the terms of their Retention of Title clause [ROT].  

While a basic ROT would only allow for the client to recover unpaid for goods, an ‘All Monies’ extension to the ROT would allow the client’s recovery rights to also attach to goods that had been paid for provided that other goods they had supplied had not.

However, while the ROT will describe what security interest is present, it is the PPSA that will determine the relative priority of that security interest over other competing interests.

Under PPSA an interest in collateral that secures its own purchase price is designated as a Purchase Money Security Interest [PMSI] and a PMSI will have, effectively, the highest priority around.  Thus recovering unpaid for property should be relatively straightforward and uncontentious (we obviously know better but this is the theory at least!).

However, under an All Monies clause we are not referring to goods that are securing their own purchase price, we are instead referring to goods that have already been paid for but secure the purchase price of other goods that have not yet been paid for.

The paid for collateral that enters the scenario by virtue of the All Monies clause cannot, therefore, be designated as a PMSI security interest.

The upshot being that the unpaid for collateral can be treated as a PMSI and recovered without the need to worry about higher priority competing claims while the paid for collateral is treated as a general non-PMSI security interest and may only be recovered once higher priority competing claims have been considered.  

In this instance, a higher priority competing claim may be an earlier all present and after acquired property security interest put in place many years ago by the customer’s bankers.

If this is a question regarding an actual situation a client is finding themselves in then I would suggest they have a go at recovering all they can as soon as they can.  This is still very new territory to many and our client may get lucky!

P