JKL,Inc.operates a retail appliance store.JKL borrows $100,000 from First Bank,giving the bank a security interest in all of its current and after-acquired inventory.The bank properly perfects its security interest.Later,JKL buys some additional inventory from Wholesalers,Inc.JKL cannot pay for the inventory purchase,so it gives Wholesalers a security interest in this inventory.Wholesalers perfects its security interest.JKL defaults on both these loans.Assuming any notice required is properly and timely given,who has priority in this after-acquired inventory?

Question

Quizplus · Accepted Answer

Wholesalers has priority because it has a purchase money security interest in the after-acquired inventory. Under the Uniform Commercial Code's (UCC) purchase money security interest (PMSI) rule, a party who sells goods on credit and takes a security interest in those goods has priority over a prior security interest if certain conditions are met. In this case, Wholesalers has a PMSI in the additional inventory purchased by JKL, and it perfected its security interest. Therefore, Wholesalers has priority over First Bank's security interest in the after-acquired inventory.

JKL,IncOperates a Retail Appliance Store