(1) Subject to subsection (2), a security interest in tangible property made effective against third parties by possession of the document of title covering that tangible property has priority over a competing security interest made effective against a third party by another method under this Act.
(2) Subsection (1) does not apply to a security interest in tangible property other than inventory if the security interest of the secured creditor not in possession of the document of title is effective against a third party before the earlier of —
(a) the time that the tangible property became covered by the document of title; and
(b) the time of conclusion of a security agreement between the grantor and the secured creditor in possession of the document of title providing for the property to be covered by a document of title if the property became so covered within 20 days from the date of the agreement.
(3) A transferee of an encumbered document of title that obtains possession of the document acquires rights free of a security interest in the document of title and the tangible property covered by that encumbered document of title is made effective against a third party by another method under this Act.