## Facts

- MBank Alamo National Association and E.I. DuPont de Nemours & Co. made loans to Howe X-Ray, an x-ray equipment distributor.
- Under security agreements, MBank and DuPont obtained security interests in Howe’s present and after-acquired accounts receivable; MBank also had a security interest in inventory.
- By January 10, 1983, MBank and DuPont had perfected their liens in Howe’s present and future accounts receivable.
- Starting in January 1983, Raytheon shipped x-ray equipment to Howe after Howe contracted to sell, deliver, and install the equipment for specific customers.
- Howe assigned to Raytheon the specific accounts receivable arising from those customer contracts, and Raytheon filed financing statements describing the assigned accounts.
- Between July 1983 and December 1984, Raytheon collected over $850,000 on the assigned accounts.
- Howe later defaulted to MBank and DuPont; they demanded Raytheon remit the collected amounts, and Raytheon refused, claiming priority in the assigned accounts.

## Issues

1. Whether an equipment supplier can hold a purchase-money security interest in accounts receivable assigned by the distributor from sales of the supplier’s goods.
2. Whether Raytheon’s interest in the assigned accounts had priority over MBank’s and DuPont’s previously perfected blanket liens in Howe’s present and future accounts receivable.
3. Whether summary judgment for the lenders on conversion was proper based on Article 9 priority rules.

## Decision

- The Fifth Circuit affirmed summary judgment for MBank and DuPont.
- Raytheon did not have a purchase-money security interest in the assigned accounts receivable.
- Without PMSI status, Raytheon’s later-perfected interests in specific accounts were subordinate to MBank’s and DuPont’s earlier perfected security interests in all accounts receivable.
- Raytheon’s collection and retention of payments on the accounts supported liability for conversion because the lenders held superior rights in the receivables.

## Legal Principles

- A purchase-money security interest is tied to value given to enable the debtor to acquire specific collateral and is ordinarily limited to the price of that collateral (and qualifying proceeds), not to any collateral the parties choose to label “purchase-money.”
- Accounts receivable are distinct collateral from the goods sold; treating a direct lien in accounts as “purchase-money” is not automatically permitted merely because the accounts arise from sale of the secured party’s goods.
- PMSI priority is an exception to the general Article 9 priority regime and is construed narrowly; absent a valid PMSI, competing security interests in the same collateral are governed by the first-to-file-or-perfect rule.
- When earlier perfected blanket liens cover present and future accounts receivable, later-perfected liens in particular accounts are junior unless a statutory priority exception applies.

## Conclusion

The court held that Raytheon’s security interest in assigned customer receivables did not qualify as a PMSI and therefore could not defeat MBank’s and DuPont’s earlier perfected blanket liens in Howe’s accounts; Raytheon was liable in conversion for retaining collections on receivables subject to the lenders’ superior rights.


MBank Alamo Nat’l Ass’n v. Raytheon Co., 886 F.2d 1449 (5th Cir. 1989)