Question

please provide a reasoning outline, as it best helps to organize the narrative:

Discount Stores, Inc., borrows $5,000 each from EZ Loan Corporation, First National Bank, and Great Products Corporation. Discount uses its “present inventory and any thereafter acquired” to secure the loans from EZ Loan and First National. EZ Loan perfects its interest on April 1, followed by First National on April 5. Discount buys new inventory on April 10 from Great Products and signs a security agreement, giving Great Products a purchase-money security interest in the new inventory. On the same day, Great Products perfects its interest and notifies EZ Loan and First National. Discount takes possession of the new inventory on April 15. On April 20, Discount defaults on all of the loans.

Whose security interest has priority?

Answer 1

Since,the loans from EZ Loan and First National twere secured on " present inventory and any thereafter acquired", both FZ Loan and First National will have a pari pasu charge on the inventory for their interest.Hence, in case of default, the security interest will be distributed between both EZ loan and First National in the proportion of the loans granted by them to Discount Stores. If the agreement provides, the secuirty interest can be distributed between the two for their principle amount of loan that is due from Discount Stores.This is known as the pari- passu charge.

Since,the charge for security interest for General Products was created through an agreement after the above mentioned agreement,General Product cannot claim any security interest on the inventory as the total value of the inventory was already pledged to EZ Loan and First National.General Products would be able to claim security interest only if any residual amount remains after satisfying the claims of EZ Loan and First National.