## Facts

- Bank of the West made a 1982 loan to Allied, taking a security interest in all existing and after-acquired inventory and accounts, and perfected by filing a financing statement.
- In 1984, Commercial Credit Financial Services, Inc. (CCFS) made loans to BCI secured by all existing and after-acquired inventory and accounts of BCI, including a beverage business, and perfected its security interest effective January 10, 1984.
- BCI later transferred the beverage business to Allied (also referenced as Allied/BIBCO after a restructuring agreement dated January 13, 1984).
- CCFS factored and collected accounts associated with the beverage business after the restructuring date.
- Bank asserted the beverage business inventory and accounts became Allied’s after-acquired collateral and, because Bank’s filing was earlier, Bank had priority over CCFS.
- CCFS asserted its perfected security interest in BCI’s beverage business collateral remained effective and senior during the relevant period, making its collections lawful.

## Issues

1. Under the California Commercial Code, which creditor had priority in the beverage business inventory and accounts during the disputed period: CCFS (secured creditor of the transferor) or Bank of the West (secured creditor of the transferee with an after-acquired property clause)?
2. If Bank of the West lacked priority, could CCFS be liable for conversion based on factoring and collecting the accounts?
3. If CCFS prevailed on priority, should the appellate court reach Bank of the West’s challenges to damages and the unaddressed fraudulent conveyance theory?

## Decision

- The Ninth Circuit affirmed that the district court’s factual findings were not clearly erroneous but held the court misapplied the California Commercial Code to the priority dispute.
- The Ninth Circuit held CCFS had the superior security interest in the beverage business collateral during the critical time frame (January 10 to July 1, 1984).
- Because CCFS had priority, the conversion judgment for Bank of the West could not stand.
- The court reversed and remanded with instructions to enter judgment for CCFS, and it did not reach Bank of the West’s damages and fraudulent conveyance arguments.

## Legal Principles

- In a priority dispute between secured creditors of different debtors claiming interests in the same collateral, priority is determined by applying Article 9 rules as enacted in the California Commercial Code.
- Appellate review of factual findings in a bench trial is for clear error; legal conclusions and application of the Commercial Code are reviewed de novo.
- A perfected security interest in collateral granted by the original debtor can remain effective and senior notwithstanding a later transfer of that collateral to another party.
- An after-acquired property clause held by a secured creditor of the transferee does not, by itself, displace a prior perfected security interest that continues in the collateral; temporal sequencing of attachment and perfection controls.

## Conclusion

The Ninth Circuit held that CCFS’s earlier perfected security interest in the beverage business collateral remained senior during the relevant period despite the collateral’s transfer to Allied, requiring reversal of the conversion judgment and entry of judgment for CCFS.


Bank of the W. v. Com. Credit Fin. Servs., Inc., 852 F.2d 1162 (9th Cir. 1988)