Priorities. PC Contractors, Inc, was an excavating business in Kansas City, Missouri. Union Bank made loans to PC, subject to a perfected security interest in its equipment and other assets, including "after-acquired property." In late 1997, PC leased

Question

heavy construction equipment from Dean Machinery Co The lease agreements required monthly payments, which PC often made late or missed completely. After eighteen months, Dean demanded that PC either return the equipment or buy it. While attempting to obtain financing for the purchase, PC continued to make monthly payments. In November 2000, Dean, which had not filed a financing statement to cover the transaction, demanded full payment of the amount due. Before paying the price, PC went out of business and surrendered its assets to Union, which prepared to sell them. Dean filed a suit in a Missouri state court against Union to recover the equipment, claiming in part that the bank's security interest had not attached to the equipment because PC had not paid for it. In whose favor should the court rule, and why?

Answer 1

Priorities
The court held, among other things, that the equipment belonged to Dean, but Union appealed to a state intermediate appellate court, which reversed this judgment. The appellate court held that the payment of a purchase price does not control when a buyer acquires rights in collateral sufficient to support the attachment of a creditor's security interest. Instead, "for a security interest to attach, a debtor must have some degree of control or authority over collateral placed in the debtor's possession." Thus, in this case, "PC Contractors' failure to pay the purchase price is not determinative of whether it had rights in the collateral. Rather, the determining factor is whether PC Contractors had control over the Equipment. . . . Here, PC Contractors had possession of the Equipment and exercised control over it by using it in its business. For that reason, Union Bank's security interest attached to the Equipment. Article 9's maxim, ‘first in time, first in right,' applies here. Union Bank's perfected security interest takes priority over Dean Machinery's unperfected interest in the Equipment."