## Facts

- Guaranty State Bank & Trust Company (GSB) and the North Central Regional Planning Commission (Commission) made loans to Barnard Grain Company (Barnard).
- On May 24, 1994, GSB filed a financing statement perfecting a security interest in Barnard’s collateral, including all inventory “now and hereafter owned”; the Commission held an earlier-perfected, non–purchase-money interest treated with GSB’s.
- Van Diest Supply Company (Van Diest) later supplied farm chemicals to Barnard on credit and, in January 1998, filed a financing statement covering Barnard’s property acquired from Van Diest and the proceeds of its sale.
- Van Diest did not send written notification to GSB or the Commission that it had or expected to acquire a purchase-money security interest (PMSI) in Barnard’s inventory.
- As Barnard’s business deteriorated, Van Diest went to Barnard’s facility in February 2000 and removed 536.5 gallons of chemicals; Van Diest later refunded Barnard after concluding it had taken more chemicals than were unpaid for.
- GSB and the Commission sued Van Diest for conversion, alleging the removed chemicals were collateral subject to their prior perfected security interests.
- The district court granted summary judgment to GSB and the Commission, finding Van Diest lacked priority and committed conversion; Van Diest appealed.

## Issues

1. Whether Van Diest obtained PMSI superpriority in inventory under K.S.A. 84-9-312(3) sufficient to defeat GSB’s and the Commission’s earlier perfected inventory security interests.
2. Whether Van Diest’s removal of the chemicals constituted conversion when GSB and the Commission held superior rights in the inventory collateral.

## Decision

- The Kansas Court of Appeals affirmed summary judgment for GSB and the Commission.
- Kansas priority under K.S.A. 84-9-312 operates as a “pure race” system: first to perfect generally has priority.
- A PMSI in inventory is a limited exception, but only if the creditor strictly satisfies K.S.A. 84-9-312(3)’s conditions.
- Van Diest failed the statutory notice requirements because it did not provide written notification to the earlier-filed secured parties.
- Without PMSI priority, GSB and the Commission had superior rights in the chemicals, and Van Diest’s removal of them constituted conversion.

## Legal Principles

- Under K.S.A. 84-9-312, priority generally goes to the secured party first in time to perfect a security interest.
- PMSI inventory superpriority under K.S.A. 84-9-312(3) requires strict compliance, including:
  - Perfection by the time the debtor receives possession of the inventory.
  - Written notification to any competing secured party with a previously filed financing statement.
  - Receipt of that notice within the five-year period before the debtor receives possession (renewed as required).
  - Notice stating the creditor has or expects to acquire a PMSI and describing the inventory by item or type.
- Filing a financing statement does not substitute for the separate written notice required for PMSI inventory priority.
- A party exercises conversion by taking dominion over collateral in which another holds superior secured rights.

## Conclusion

Because Van Diest did not strictly satisfy K.S.A. 84-9-312(3)’s written notice requirement, it did not obtain PMSI priority over GSB’s and the Commission’s earlier perfected inventory security interests; its self-help removal of the chemicals therefore supported liability for conversion, and summary judgment for the earlier secured parties was affirmed.


Guaranty State Bank & Tr. Co. v. Van Diest Supply Co., 55 P.3d 357 (Kan. Ct. App. 2002)