## Facts

- Rex Financial Corporation provided floor-plan financing to Liberty Mobile Home Centers, Inc., taking a security interest in Liberty’s mobile home inventory and the proceeds of that inventory.
- As part of the financing arrangement, Liberty delivered manufacturers’ certificates of origin for the mobile homes to Rex, and Rex retained the certificates for four homes at issue.
- Liberty sold four mobile homes to retail buyers and, for each sale, received a retail installment contract/security agreement creating an obligation secured by the sold home (chattel paper).
- Liberty sold the four retail contracts to Great Western Bank & Trust, which was in the business of purchasing such contracts.
- Great Western paid new value for the contracts and took possession of the chattel paper; Liberty did not remit the proceeds to Rex to reduce Liberty’s inventory debt.
- Rex claimed its earlier security interest in inventory and proceeds continued in the chattel paper and/or payments; Great Western claimed statutory priority as a purchaser of chattel paper.

## Issues

1. Whether a bank that purchases chattel paper for new value, takes possession, and acts in the ordinary course has priority over a prior inventory financer claiming the chattel paper as proceeds of inventory.
2. Whether the inventory financer’s retention of manufacturers’ certificates of origin prevents the purchaser from obtaining priority or makes the certificates part of the chattel paper.

## Decision

- The Arizona Court of Appeals affirmed summary judgment for Great Western.
- The court held Great Western had priority in the chattel paper and resulting payments over Rex’s interest claimed as proceeds of inventory.
- The court held manufacturers’ certificates of origin are not chattel paper and Rex’s retention of them did not defeat Great Western’s statutory priority.

## Legal Principles

- Under Arizona’s enactment of UCC § 9-308 (A.R.S. § 44-3129), a purchaser of chattel paper who gives new value and takes possession in the ordinary course has priority over a security interest in the chattel paper claimed merely as proceeds of inventory, even with knowledge of the prior security interest.
- “Chattel paper” consists of a record that evidences both (1) a monetary obligation and (2) a security interest in, or lease of, specific goods.
- A manufacturer’s certificate of origin does not, by itself, evidence a monetary obligation and a security interest in goods; it is therefore not chattel paper for purposes of the chattel paper priority rule.
- An inventory financer’s interest in retail installment contracts generated by inventory sales is typically a proceeds claim governed by the chattel paper priority statute when competing with a qualifying chattel paper purchaser.

## Conclusion

The court enforced the statutory priority given to qualifying purchasers of chattel paper, ruling that a bank buying retail installment contracts for new value, taking possession, and acting in the ordinary course prevails over an inventory financer’s proceeds claim, and that holding certificates of origin does not alter this priority.


Rex Fin. Corp. v. Great W. Bank & Tr., 23 Ariz. App. 286, 532 P.2d 558 (Ariz. Ct. App. 1975)