Critical Thinking Exercise 18-1 - Law Firm 2

FromSpecial Topics in Business Law

Rebel Rents was the largest independent equipment rental company in Southern California, offering a wide inventory of equipment for sale or lease to construction companies, industrial concerns, commercial businesses, and residential homeowners. On September 14, 2000, Rebel executed a "finance plan" and "wholesale security agreement" with Textron Financial Corporation to finance its purchase of inventory from Snorkel (a manufacturer of articulated booms and aerial work platforms), and granted Textron a security interest in the following collateral:

All equipment and inventory, wherever located, in which Debtor now or hereafter has rights, financed or refinanced by Secured Party for Debtor, including, but not limited to, telescopic material handlers, aerial work platforms, skid steers, wheel loaders, mini excavators, power haulers and related products; all present and future attachments, accessories and accessions thereto; all spare parts, replacements, substitutions and exchanges therefor; all trade-ins relating thereto; all instruments, accounts and chattel paper arising therefrom (including leases and conditional sales contracts); and the proceeds of all of the foregoing, including proceeds in the form of goods, accounts, chattel paper, documents, instruments and/or general intangibles.

Textron, however, did not file a financing statement with the California Secretary of State to perfect its security interest in the collateral until January 16, 2001. On December 29, 2000, Rebel obtained a $23 million revolving line of credit and a $2 million term loan from General Electric Credit Corporation (GECC). The line of credit and term loan were evidenced by a loan agreement and term loan note, each dated December 29, 2000. In conjunction therewith, Rebel executed a security agreement dated December 29, 2000, granting GECC a security interest in substantially all of Rebel's assets, including accounts receivable, chattel paper, contracts, documents, equipment, fixtures, general intangibles, goods, instruments, inventory, investment property, deposit accounts and other accounts, money, cash and cash equivalents, together with all "proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing." On January 5, 2001, GECC filed a financing statement with the California Secretary of State to perfect its security interest in the collateral. On September 23, 2002, Rebel filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.

1. Since Rebel has pledged substantially the same collateral to both Textron and GECC, between the two creditors, which one has priority to the collateral?

Please include reference