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A perfected security interest resulting from an after-acquired property clause prevails over the retained interest of an unpaid cash-seller.
Defendants, cattle company and its agent, sold livestock to debtor and delivered the cattle prior to payment. Plaintiff, holder of a security interest, brought an action against debtor in replevin on a promissory note. Plaintiff had perfected its security interest in debtor's livestock by way of an after-acquired property clause, and amended its suit to include the cattle and named defendants as a party. The trial court found that plaintiff held a valid perfected security interest in the livestock pursuant to Colo. Rev. Stat. 4-9-103, including the cattle, and that defendants had the right to reclaim the cattle as cash-sellers pursuant to Colo. Rev. Stat. 4-2-507. However, the trial court held that plaintiff's perfected security interest had priority over defendants' right to reclaim the cattle. Defendants challenged the decision, arguing that their right to reclaim the cattle as an unpaid seller took priority over plaintiff's perfected security interest in after-acquired property.
Did the plaintiff, as a holder of security interest, have priority over defendants’ right to reclaim cattle, as an unpaid seller?
The court affirmed the decision of the trial court, holding that the title to the cattle passed to debtor upon defendants' full performance, i.e., upon delivery of the cattle. Upon delivery, debtor had rights in the cattle to which plaintiff's security interest could, and therefore did, attach.