## Facts

- Sprague National Bank made loans to John and Dorothy Morken beginning in 1990 and took a blanket security interest in their inventory, accounts receivable, and proceeds, including livestock.
- Sprague perfected its security interest by filing a UCC-1 financing statement in Kansas.
- Hoxie Feeders, Inc. financed the Morkens’ acquisition of cattle and claimed a purchase-money security interest (PMSI) in those cattle.
- Hoxie perfected its PMSI by retaining possession/control of the cattle (the cattle remained at Hoxie’s feedlot rather than being delivered into the Morkens’ physical possession).
- After the Morkens filed bankruptcy, the cattle were sold and generated proceeds, prompting a priority dispute between Sprague and Hoxie.
- The bankruptcy trustee, Phillip Kunkel, brought an adversary proceeding to determine the parties’ rights in the cattle and proceeds.
- The bankruptcy court granted summary judgment for Hoxie, finding both parties perfected but holding Hoxie’s PMSI had priority; the district court affirmed and alternatively held Sprague never obtained a security interest because the debtor lacked sufficient “rights in the collateral.”

## Issues

1. Whether the debtor had sufficient “rights in the collateral” under U.C.C. § 9-203 for Sprague’s security interest to attach to the cattle.
2. Whether Hoxie’s PMSI in the cattle, perfected by possession, had priority over Sprague’s earlier filed blanket security interest in inventory and proceeds.
3. Whether Article 9’s inventory PMSI notification requirement applies when the PMSI is perfected by possession rather than by filing.

## Decision

- The Eighth Circuit affirmed the judgment awarding priority to Hoxie.
- The court reversed the district court’s alternative holding that Sprague lacked a security interest, concluding the debtor had sufficient rights in the cattle for Sprague’s lien to attach and be perfected by filing.
- The court held Hoxie’s PMSI, continuously perfected by possession, was senior to Sprague’s perfected blanket lien in the cattle and their proceeds.
- The court agreed that Hoxie was not required to give the pre-delivery PMSI notice associated with filing-based inventory PMSIs because Hoxie perfected by possession and the debtor never obtained actual possession.

## Legal Principles

- “Rights in the collateral” for attachment under U.C.C. § 9-203 can exist without the debtor’s physical possession; contractual and ownership-type interests may be sufficient.
- A prior filed floating/blanket lien can attach to goods and proceeds when the debtor acquires sufficient rights, even if another creditor retains physical control for feeding or finishing.
- A PMSI perfected by possession may obtain priority over an earlier filed security interest without satisfying the inventory PMSI notification requirement aimed at filing-based PMSIs.
- Continuous possession by the PMSI creditor can maintain perfection and support priority where the debtor never takes actual possession of the collateral.

## Conclusion

The court held Sprague’s blanket lien attached because the debtor had sufficient rights in the cattle, but Hoxie’s purchase-money security interest—perfected and maintained by possession—took priority in the cattle and sale proceeds over Sprague’s earlier filed security interest.


Kunkel v. Sprague Nat'l Bank, 128 F.3d 636 (8th Cir. 1997)