## Facts

- Malone & Hyde, Inc. (Malone) entered an agreement with John Kizer to sublease him a grocery store and to sell him approximately $200,000 in equipment and $187,000 in inventory.
- In exchange, Kizer executed a promissory note to Malone for $387,000, secured by a security interest in the store’s present and after-acquired inventory.
- Malone perfected its security interest under Article 9 of the Uniform Commercial Code (UCC).
- Kizer opened the store and sold inventory supplied by Malone as well as goods supplied on open account by Peerless Packing Co., Inc. and eleven other wholesalers (the wholesalers).
- The wholesalers regularly delivered goods to Kizer on credit but did not obtain purchase-money security interests (PMSIs) in the inventory they supplied.
- The store performed poorly. Malone learned that Kizer was missing rent and note payments and that the business was reducing inventory to meet obligations.
- Kizer signed a “Notice of Default and Transfer of Possession Agreement” transferring to Malone all rights in the store, equipment, and inventory (and related assets) in exchange for Malone releasing Kizer from liability for existing deficiencies.
- Malone took possession of the store and notified the wholesalers that it had realized on its security interest and would not pay invoices for inventory delivered before Malone resumed control.
- The wholesalers sued Malone asserting unjust enrichment, claiming Malone benefited by taking the store and inventory while the wholesalers remained unpaid.
- Malone moved for a directed verdict. The trial court granted it, reasoning unjust enrichment was not available where the dispute was governed by the UCC.
- The wholesalers appealed to the Supreme Court of Appeals of West Virginia.

## Issues

1. Can unsecured wholesalers recover from a perfected Article 9 secured creditor on an unjust-enrichment theory after the creditor realizes its security interest in inventory, where the wholesalers did not obtain PMSIs and no fraud-like conduct is shown?

## Decision

- The court affirmed the directed verdict for Malone.
- Unjust enrichment could not be used to defeat Article 9 rights created and perfected in compliance with the UCC.
- The wholesalers’ failure to protect themselves with PMSIs left them subordinate to Malone’s properly perfected security interest.
- Equity would not be used to reorder UCC priority rules absent truly egregious circumstances approaching actual fraud, which were not present.

## Legal Principles

- Article 9’s priority rules generally control disputes over collateral when a security interest is properly created and perfected; equity will not reorder priorities simply because the result is harsh for unsecured creditors.
- Unjust enrichment is generally unavailable to override rights established under Article 9 when doing so would impair the UCC’s certainty and predictability.
- Suppliers who extend open-account credit without obtaining and perfecting PMSIs assume the risk that a prior perfected secured party will have priority in the inventory.
- Equitable relief against a secured creditor may be considered only in extreme circumstances approaching actual fraud or comparable misconduct; ordinary enforcement of a valid security interest is not enough.

## Conclusion

Peerless and other wholesalers could not use unjust enrichment to recover the value of unpaid inventory after Malone, a properly perfected secured creditor, took back the grocery store and inventory under Article 9; allowing equity to defeat UCC priority would impair the UCC’s predictable structure, and no fraud-like conduct justified departing from those rules, so the directed verdict for Malone was affirmed.


Peerless Packing Co. v. Malone & Hyde Inc., 376 S.E.2d 161 (1988)