## Facts

- First National Bank of Steeleville, N.A. (First National) loaned AmEarth Corporation (AmEarth) more than $500,000.
- AmEarth granted First National a security interest in all of AmEarth’s equipment, whether then owned or later acquired; First National perfected its interest by filing.
- AmEarth later acquired five pieces of John Deere machinery from ERB Equipment Co. (ERB). Two machines were purchased from ERB under financing that gave ERB a security interest intended to secure the purchase price; three additional machines were also acquired from ERB on other credit terms.
- As AmEarth’s financial condition worsened, AmEarth and ERB entered a new financing agreement dated December 27, 1988, consolidating all debts AmEarth owed ERB into a single plan covering all five machines. The consolidated plan did not clearly preserve or trace any purchase-money component by tying particular portions of the debt to particular items of collateral.
- ERB later repossessed the machinery and conducted a foreclosure sale under Article 9, at which ERB purchased the machines for itself.
- First National sued ERB seeking the proceeds from the disposition of the two John Deere machines (and related relief), asserting that First National’s prior perfected blanket lien had priority.
- The trial court found that the December 27 consolidation transformed and destroyed any purchase-money status ERB may have had in the covered machinery, ruled First National was entitled to the sale proceeds, and concluded that ERB—having purchased at its own foreclosure sale—took the machines subject to First National’s prior interest and committed conversion by retaining the equipment after the sale.
- The trial court rejected First National’s requests for punitive damages and prejudgment interest. Both sides appealed.

## Issues

1. Whether ERB’s December 27, 1988 consolidation of AmEarth’s obligations eliminated any purchase-money security interest (PMSI) status ERB otherwise would have had in the machinery as against First National’s earlier perfected blanket lien.
2. Whether ERB’s foreclosure sale and ERB’s purchase of the collateral at that sale cut off First National’s prior perfected security interest, or left ERB holding the machinery subject to First National’s lien.
3. Whether ERB was liable for conversion by retaining the repossessed machinery (or its value/proceeds) in derogation of First National’s superior security interest.
4. Whether First National was entitled to punitive damages and prejudgment interest arising from ERB’s repossession, sale, and retention of the collateral and proceeds.

## Decision

- The appellate court agreed with the trial court that ERB’s consolidation of purchase-money and non-purchase-money obligations into a single, non-traced debt destroyed PMSI status for priority purposes.
- Because ERB no longer held PMSI priority, First National’s previously perfected blanket security interest was senior as to the machinery and the relevant proceeds.
- The court held that ERB’s Article 9 sale could not discharge First National’s senior lien; ERB’s purchase at its own sale left it as a purchaser taking subject to First National’s prior perfected interest.
- The court upheld the trial court’s determination that ERB’s post-sale retention of the collateral (in the face of First National’s superior rights) supported conversion liability.
- The court affirmed the denial of punitive damages.
- The court addressed prejudgment interest under Missouri standards for liquidated or readily ascertainable claims, affirming in part and reversing and remanding to the extent further determination was required on whether and when the amount due became ascertainable.

## Legal Principles

- A PMSI can lose its purchase-money character when a creditor refinances or consolidates purchase-money and non-purchase-money obligations into a single debt secured by the same collateral, without a clear method to allocate and trace the purchase-money portion to specific collateral.
- When PMSI status is lost, the creditor’s interest is treated as a non-purchase-money security interest for priority purposes and is subordinate to a prior perfected blanket security interest covering the debtor’s equipment (including after-acquired equipment).
- Under Article 9, a disposition by a secured party discharges subordinate security interests but generally does not discharge senior security interests; a purchaser at such a sale takes subject to earlier perfected liens.
- A secured party that repossesses and then purchases the collateral at its own foreclosure sale may stand as a purchaser (rather than continuing as a secured creditor as to that collateral) and, if the sale did not cut off a senior lien, the purchaser takes subject to the senior lien.
- Conversion may be established where a party exercises dominion over collateral inconsistent with the superior rights of another secured party.
- Punitive damages require more than an ordinary priority dispute; prejudgment interest depends on whether the claim is liquidated or readily ascertainable and the point in time when payment became due.

## Conclusion

First National Bank of Steeleville held a prior perfected blanket security interest in AmEarth’s equipment, and ERB’s later consolidation financing destroyed any PMSI priority ERB might otherwise have claimed in the machinery. ERB’s foreclosure sale could not cut off First National’s senior lien, and ERB’s self-purchase at that sale left it holding the machines subject to First National’s interest, supporting conversion liability and First National’s right to the proceeds/value. The appellate court largely affirmed, rejecting punitive damages and addressing prejudgment interest under Missouri’s liquidated-claim standards with limited remand as necessary.


First National Bank of Steeleville, N.A. v. ERB Equipment Co., 921 S.W.2d 57, 32 U.C.C. Rep. Serv. 2d 582 (1996)