## Facts

- Southtrust Bank held perfected security interests in the inventory of four debtor companies under after-acquired “all inventory” clauses, and it filed financing statements before Borg-Warner Acceptance Corporation (BWAC) in each case.
- BWAC provided inventory financing by purchasing vendors’ invoices for goods supplied to the debtors and took security interests covering inventory and related collateral.
- BWAC’s security agreements secured repayment of the invoice financing and also secured all other existing and future debts and obligations owed by the debtor to BWAC.
- The debtors paid BWAC monthly based on a fixed percentage of outstanding invoices, regardless of whether the particular inventory had been sold.
- After the debtors defaulted, Southtrust and BWAC disputed priority in the remaining inventory; Alabama law applied to three debtors and Georgia law to one, but the relevant UCC provisions were materially the same.

## Issues

1. Whether BWAC’s interest qualified as a purchase money security interest (PMSI) in inventory with super-priority over Southtrust’s earlier-filed blanket inventory lien.
2. Whether a security agreement that secures purchase-money advances plus all other present and future obligations, combined with a revolving repayment method not tied to specific goods, defeats PMSI status “to the extent” required by UCC § 9-107 and the inventory PMSI priority rule.

## Decision

- The Eleventh Circuit affirmed summary judgment for Southtrust.
- BWAC’s security interest was not treated as a qualifying inventory PMSI entitled to super-priority over Southtrust’s earlier-filed interest.
- Because the PMSI exception did not apply, the first-to-file rule left Southtrust with priority in the inventory of all four debtors.

## Legal Principles

- Priority between perfected security interests in the same inventory generally follows the order of filing or perfection unless a statutory PMSI exception is satisfied.
- PMSI super-priority in inventory is a narrow exception and is applied strictly; the secured party must satisfy the statutory requirements clearly.
- Under the “to the extent” language in the PMSI definition, purchase-money status requires a traceable link between the enabling value advanced and the specific collateral acquired with that value.
- A broad “all obligations” (dragnet) clause that secures both purchase-money and non-purchase-money debt, without limiting the lien to the purchase-money portion, can convert the claimed PMSI into a non-PMSI for priority purposes.
- A revolving repayment structure that is not allocated to particular goods can prevent identifying which collateral and debt remain purchase-money, undermining a claim to PMSI inventory super-priority.

## Conclusion

The court held that BWAC could not claim inventory PMSI super-priority because its security agreements and repayment method failed to confine and trace the lien “to the extent” of purchase-money advances; therefore, Southtrust’s earlier-filed blanket inventory liens had priority.


Southtrust Bank of Ala., Nat’l Ass’n v. Borg-Warner Acceptance Corp., 760 F.2d 1240 (11th Cir. 1985)