## Facts

- Olympus Glass Company, Inc. operated as a glazing contractor and wholesale glass supplier.
- First Interstate Bank of Utah, N.A. extended Olympus a $500,000 line of credit secured by a security agreement covering Olympus’s existing and after-acquired accounts receivable (and proceeds), inventory, and other collateral.
- The United States, through the IRS, filed a notice of federal tax lien against Olympus before the later advances that generated the disputed receivables.
- After the federal tax lien filing, the Bank agreed to finance Olympus’s performance of six already-existing glazing contracts by paying labor and material costs.
- Olympus completed performance of those contracts, generating the accounts receivable at issue.
- Olympus filed for Chapter 11 bankruptcy, and the Bank and IRS disputed priority to the receivables.
- The bankruptcy court ruled the Bank did not have a purchase-money security interest (PMSI) in the receivables and that the federal tax lien had priority; the district court affirmed.

## Issues

1. Whether advances used to pay labor and materials to perform pre-existing contracts “enable the debtor to acquire rights in or the use of collateral” so as to create a PMSI in the resulting accounts receivable under Utah Code Ann. § 70A-9-107(b).
2. If no PMSI existed under Utah law, whether the previously filed federal tax lien had priority over the Bank’s security interest in the receivables.

## Decision

- The Tenth Circuit affirmed.
- The court held the Bank’s security interest in the receivables was not a PMSI under Utah Code Ann. § 70A-9-107(b).
- Because the interest was not a PMSI, the IRS’s previously filed federal tax lien had priority over the Bank’s security interest.
- With no material factual dispute, the court reviewed the legal question de novo.

## Legal Principles

- Under Utah Code Ann. § 70A-9-107(b), a PMSI exists only to the extent the secured party’s value enables the debtor to acquire rights in (or the use of) the collateral and the value is in fact so used.
- Financing the costs of performing pre-existing contracts (working-capital-type funding for labor and materials) does not constitute financing the acquisition of the resulting accounts receivable as collateral for PMSI purposes.
- A PMSI can take priority over an earlier federal tax lien only if state law characterizes the security interest as purchase-money; otherwise, the earlier filed tax lien prevails under federal priority rules.

## Conclusion

The Bank’s advances funded Olympus’s performance obligations under contracts it already owned, and that financing did not qualify as purchase-money value used to acquire the receivables under Utah’s PMSI statute; therefore, the previously filed federal tax lien remained superior to the Bank’s security interest in the accounts receivable.


First Interstate Bank of Utah, N.A. v. Internal Revenue Serv., 930 F.2d 1521 (10th Cir. 1991)