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Unperfected Secured Creditor with After Acquired Property Clause Ruled Top Dog

The Superior Court of Rhode Island recently granted a motion for replevin in favor of an unperfected secured creditor, Pet Food Experts, Inc., and against another unperfected secured creditor, Greenwood Credit Union, to partially satisfy obligations owing from Alpha Nutrition, Inc. d/b/a to Pet Food Experts. In Pet Food Experts, Inc. v. Alpha Nutrition, Inc., 2016 R.I. Super LEXIS 58 (R.I. Sup. Ct. May 10, 2016), two secured creditors were competing over their security interests in a 2015 Cadillac Escalade. Pet Food Experts previously made a $700,000 loan to Alpha Nutrition in September 2014 that was secured by all of Alpha’s existing and after acquired assets. Pet Food Experts perfected its security interest by filing a UCC financing statement. Alpha Nutrition later purchased an Escalade using financing it received from Greenwood. While Greenwood received a security interest in the vehicle in exchange for the financing, Greenwood failed to note its interest on the vehicle’s certificate so as to perfect its interest in accordance with Rhode Island law. Alpha Nutrition subsequently defaulted on its payments to Pet Food Experts and Pet Food Experts filed a replevin action for the vehicle. The Court, after describing the steps to perfect an interest in a titled vehicle, held that while both secured parties’ interests attached to the vehicle at the same time, neither noted their lien on the title, and thus both were unperfected. As a result, the Court could not look to either the title statute’s or the UCC’s priority rules, but rather had to use its equitable powers to determine priority. In holding that Pet Food Experts had priority, the court stated that the subsequent lender providing the financing to the debtor was in a better position to perfect its interest and that a creditor with an after-acquired property clause was “at a severe disadvantage when the after-acquired property is an automobile financed by a subsequent creditor.” The Court thus granted the replevin motion in favor of Pet Food Experts.

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