Question

Computer Sales, Inc, borrows $25,000 each from EZ Loan Corporation and BBT Bank. Computer Sales uses its "present inventory and any thereafter acquired" to secure the loans from EZ Loan and BBT. EZ Loan perfects its interest on April 1, followed by BBT on April 5. Computer Sales buys 40,000 in new inventory on April 10 from Apple Computers and signs a security agreement, giving Apple a purchase-money security interest in the new inventory. Computer Sales takes possession of the new inventory on April 15. On the same day, Apple perfects its interest and notifies EZ Loan and BBT.
On August 20, Computer Sales defaults on all of the loans. At the time of default, there is a total of 50,000 dollars in inventory, 20,000 dollars of that inventory was purchased from Apple computers on April 10.
Whose security interest has priority over any or all of the inventory? Explain.

Answer 1

Apple Computers’ security interest has priority. Under the general rule that when two or more secured parties have perfected security interests in the same collateral, the first to perfect its interest has priority (unless a state statute provides otherwise), EZ Loan would have priority. Here, EZ Loan has priority with respect to First National. There are exceptions, however, that involve purchase-money security interests (PMSIs). A PMSI in non-consumer goods which has priority, even if it is later in time of perfection when, as in this problem, the PMSI attaches to inventory, the PMSI is perfected, and proper written or authenticated notice of the PMSI is given to other security-interest holders on or before the time that the debtor takes possession of the inventory.