## Facts

- GECC financed Spartan Motors, Ltd., an automobile dealership, and held a long-standing, perfected blanket security interest in Spartan’s inventory arising from a 1983 arrangement.
- In 1991, Spartan entered a separate floor-plan financing relationship with GMAC under which GMAC would finance inventory acquisitions and take a purchase-money security interest (PMSI) in financed inventory and proceeds.
- GMAC filed its financing/security documents and sent GECC written notification that GMAC held or expected to acquire PMSIs in inventory delivered to Spartan and in the proceeds.
- The dispute concerned two Mercedes-Benz vehicles added to Spartan’s inventory.
- Spartan initially paid for the two vehicles; days later GMAC reimbursed Spartan pursuant to the parties’ floor-plan practice, which was described as common in the trade and in their course of dealing.
- After Spartan’s bankruptcy, the vehicles were seized and liquidated; GMAC ultimately sold the two vehicles.
- GECC sued, asserting its blanket lien had priority and that GMAC’s disposition of the vehicles constituted conversion.

## Issues

1. Whether GMAC’s post-purchase reimbursement of Spartan for specific inventory constituted a PMSI in the two vehicles that could take priority over GECC’s earlier perfected blanket security interest.
2. Whether GMAC’s sale of the vehicles could support GECC’s conversion claim if GMAC’s security interest had priority.

## Decision

- The appellate court reversed the order granting summary judgment to GECC.
- The court held that GMAC’s reimbursement financing could constitute a valid PMSI because it was intended to enable Spartan’s acquisition of the vehicles and was used for that purpose.
- The court concluded GMAC’s PMSI had priority over GECC’s earlier blanket lien as to the two vehicles and their proceeds, given GMAC’s filing and notice.
- Because GMAC’s PMSI was superior in the disputed collateral, GECC’s conversion theory based on superior rights to those vehicles was not sustained on that record.

## Legal Principles

- A PMSI exists when a lender’s value is intended to enable the debtor to acquire specific collateral and is in fact used to do so; strict simultaneity between the advance and the purchase is not always required.
- In inventory financing, post-purchase reimbursement may qualify as purchase-money financing when it is closely connected to the acquisition under an established floor-plan arrangement, including course of dealing and trade usage.
- A PMSI in inventory may achieve priority over an earlier perfected blanket lien if the PMSI creditor satisfies applicable perfection and notification requirements to prior secured parties.

## Conclusion

The court held that GMAC’s floor-plan reimbursement for the two vehicles could be treated as purchase-money financing closely tied to the acquisitions, giving GMAC a properly perfected and notified PMSI with priority over GECC’s prior blanket inventory lien, defeating GECC’s claim to superior rights in the vehicles.


Gen. Elec. Cap. Com. Auto. Fin., Inc. v. Spartan Motors, Ltd., 246 A.D.2d 41 (N.Y. App. Div. 2d Dep’t 1998)