## Facts

- Brodie Hotel Supply, Inc. sold restaurant equipment to a prior operator in 1959; after the buyer’s bankruptcy, Brodie repossessed the equipment but left it on the restaurant premises.
- With Brodie’s consent, James Lyon took over operation of the restaurant and used the equipment beginning June 1, 1964, while negotiating with Brodie to purchase it.
- On November 2, 1964, Lyon borrowed $17,000 from the National Bank of Alaska and granted a chattel mortgage covering the restaurant equipment.
- On November 4, 1964, a financing statement was filed reflecting the bank’s security interest and the Small Business Administration (SBA) as assignee.
- On November 12, 1964, Brodie delivered a bill of sale to Lyon; Lyon executed a chattel mortgage to Brodie securing the unpaid purchase price (a purchase-money transaction).
- Brodie filed its financing statement on November 23, 1964.
- The equipment was sold and the proceeds were impounded by agreement pending a determination of lien priority.
- The district court granted summary judgment to Brodie; the United States (for SBA) appealed.

## Issues

1. For purposes of UCC § 9-312(4)’s ten-day PMSI perfection period, when did Lyon become the “debtor” whose “receipt of possession” starts the ten-day clock: when he first physically possessed the equipment, or when he became obligated on Brodie’s purchase-money debt?
2. Whether Brodie’s purchase-money security interest, perfected by filing within the statutory period, had priority over SBA’s earlier-filed, non-purchase-money security interest under Alaska’s UCC.

## Decision

- The Ninth Circuit affirmed the summary judgment for Brodie.
- The court held Brodie held a purchase-money security interest in non-inventory collateral and satisfied UCC § 9-312(4) by filing within ten days after Lyon became the relevant “debtor” and received possession in that capacity.
- The court rejected the government’s argument that the ten-day period began when Lyon first physically possessed the collateral months earlier.
- Brodie’s PMSI took priority over SBA’s previously filed security interest, entitling Brodie to the impounded sale proceeds.

## Legal Principles

- Under UCC Article 9, the general “first-to-file” rule for perfected security interests yields to the special priority rule for a purchase-money security interest in collateral other than inventory when the PMSI is perfected within the statutory grace period.
- “Debtor” for Article 9 purposes means the person who owes payment or other performance of the obligation secured; mere physical possession of collateral does not, by itself, make a person a “debtor” as to a particular secured obligation.
- For UCC § 9-312(4), the phrase “after the debtor receives possession” refers to the time when the person who becomes obligated on the purchase-money secured obligation receives possession in that debtor capacity, not an earlier period of possession unrelated to that obligation.
- A properly perfected non-inventory PMSI can defeat an earlier-filed, non-PMSI security interest in the same collateral.

## Conclusion

The Ninth Circuit ruled that the ten-day PMSI perfection period ran from the time Lyon became obligated to Brodie on the purchase-money debt, and because Brodie filed within that period, its non-inventory PMSI had priority over SBA’s earlier-filed non-purchase-money lien.


Brodie Hotel Supply, Inc. v. United States, 431 F.2d 1316 (9th Cir. 1970)