Laws and Contracts Lesson 29
LAW AND CONTRACTS
1.Eagle Stores, Inc. borrows $5,000 each from EZ Loan Corporation, First National Bank, and Great Products Corporation. Eagle uses its "present inventory and any thereafter acquired" to secure the loans from EZ Loan and First National. EZ Loan perfects its interest on April 1, followed by First National on April 5. Eagle buys new inventory on April 10 from Great Products and signs a security agreement, giving Great Products a purchase-money security interest (PMSI) in the new inventory. On the same day, Great Products perfects its interest and notifies EZ Loan and First National. Eagle takes possession of the new inventory on April 15. On April 20, Eagle defaults on all of the loans.
• Whose security interest has priority?
Great Products’s security interest has priority. Great products has a properly secured PMSI in inventory. They will prevail over EZ Loan and First National even though they properly secured before Great Products. Great Products has a PMSI and also notified the other creditors on April 10, before the debtor Eagle Stores, Inc. took possession of the new inventory on 15 April. “The general rule to determine priority among creditors who possess perfected security interest in the same collateral is that the first security interest to be filed or perfected has priority over other filed or perfected security interests. Unless a subsequent security interest to be first perfected is a PMSI: (1) in after-acquired collateral which is perfected within 20 days; or (2) in inventory and proper notice is given”. Lesson Review Exercises 608-22-16, Q 10.
The UCC does provides that in some instances a PMSI that is properly perfected, will prevail over another security interest in after-acquired collateral, even though the other was perfected first. One such significant exception to the general rule is a PMSI in inventory. “A perfected PMSI in inventory has priority over a conflicting security interest in the same inventory,
1.Eagle Stores, Inc. borrows $5,000 each from EZ Loan Corporation, First National Bank, and Great Products Corporation. Eagle uses its "present inventory and any thereafter acquired" to secure the loans from EZ Loan and First National. EZ Loan perfects its interest on April 1, followed by First National on April 5. Eagle buys new inventory on April 10 from Great Products and signs a security agreement, giving Great Products a purchase-money security interest (PMSI) in the new inventory. On the same day, Great Products perfects its interest and notifies EZ Loan and First National. Eagle takes possession of the new inventory on April 15. On April 20, Eagle defaults on all of the loans.
• Whose security interest has priority?
Great Products’s security interest has priority. Great products has a properly secured PMSI in inventory. They will prevail over EZ Loan and First National even though they properly secured before Great Products. Great Products has a PMSI and also notified the other creditors on April 10, before the debtor Eagle Stores, Inc. took possession of the new inventory on 15 April. “The general rule to determine priority among creditors who possess perfected security interest in the same collateral is that the first security interest to be filed or perfected has priority over other filed or perfected security interests. Unless a subsequent security interest to be first perfected is a PMSI: (1) in after-acquired collateral which is perfected within 20 days; or (2) in inventory and proper notice is given”. Lesson Review Exercises 608-22-16, Q 10.
The UCC does provides that in some instances a PMSI that is properly perfected, will prevail over another security interest in after-acquired collateral, even though the other was perfected first. One such significant exception to the general rule is a PMSI in inventory. “A perfected PMSI in inventory has priority over a conflicting security interest in the same inventory,