In re McAllister

In 1985 Michael and Pamela McAllister (debtors) gave First Southeast Bank (the bank) (creditor) a security interest in all equipment that they owned and would later acquire, which the bank perfected. Between 1998 and 2000, the McAllisters entered into several security agreements with Ag Services of America (Ag Services) (creditor) in which Ag Services loaned the McAllisters money in exchange for a security interest in all of the McAllisters’ equipment that they owned and would later acquire. In 1999 Ag Services gave the McAllisters a loan that allowed them to purchase a planter, a trailer, and an auger (the subject equipment), causing Ag Services to have a purchase-money security interest in the subject equipment. In 2000 the McAllisters refinanced the 1999 loan, increasing the principal balance. The interest rate and due date did not change between the 1999 and 2000 loan. Sometime later, the McAllisters filed for bankruptcy. Ag Services and the bank disagreed as to which party had the superior interest in the subject equipment. Ag Services claimed that it had a superior purchase-money security interest in the subject equipment. The bank claimed that Ag Services lost its purchase-money security interest when the McAllisters refinanced their loan in 2000, meaning that the bank’s interest was superior because it was perfected first.