EUROBANK

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF PUERTO RICO

IN RE: Case No. 05-12871 (MCF)

DECKERS CONSTRUCTION, INC., Chapter 7

Debtor(s).

ERUROBANK,

Adv. No. 09-00239 (MCF)

Plaintiff(s),

V.

WESTERNBANK PUERTO RICO,

Defendant(s).

OPINION AND ORDER

The controversy before the Court revolves around competing

security interests in accounts receivable of the Debtor, Deckers

Construction, Inc. (hereafter referred to as "Debtor" or

"Deckers"). Plaintiff, Eurobank, now Oriental Bank (hereafter

referenced to as "Eurobank"), asserts that it has a super

priority interest over Defendant, Westernbank Puerto Rico, now

Banco Popular de Puerto Rico (hereafter referenced to as

"Westernbank"), in the accounts receivable of Deckers even

though Westernbank's security interest was recorded prior to

Burobank's. Eurobank contends that its junior security interest

trumps Westernbank's because Eurobank's security interest falls

within the scope of a purchase money security interest

(hereafter referenced to as "PMSI"). Defendant disagrees and

argues that the general rule of "first in time, first in right"

governs rather than the exception of the purchase money security

interest.

For the reasons set forth below, the Court holds that

BFurobank's security interest does not fall within the scope of a

PMSI under the Puerto Rico Uniform Commercial Code, and,

consequently, the general rule of "first in time, first in

right" governs in this case.

I. UNCONTESTED MATERIAL FACTS AND PROCEDURAL HISTORY

By agreement of the parties at the initial scheduling

conference,! this matter is appropriate for summary judgment

disposition as there are no material facts in dispute and one of

the parties is entitled to judgment as a matter of law, pursuant

to Fed. R. Civ. P. 56(c), as made applicable to these

proceedings by virtue of Fed. R. Bankr. P. 7056. Celotex v.

Catrett, 477 U.S. 317 (1986) (citing Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 250 (1986)); Vega-Rodriguez v. Puerto Rico

Tel. Co., 110 F.3d 174, 178 (1st Cir. 1997).

The relevant undisputed facts are as follows:

1. Desarrollo de Vivienda del Centro, Inc. (hereafter

referenced to as “DVC”) is the general partner of the Comerio

Housing Limited Partnership, S.E. (hereafter referenced to as

' Docket No. 43.

“Comerio Housing”) and Villalba Housing Limited Partnership,

S.E. (hereafter referenced to as “Villalba Housing”).

2. On January 10, 2002, Deckers executed a construction

contract with DVC and Comerio Housing in the amount of

$4,000,972.00 (hereafter referenced to as the “Comerio

Project”). On that same date, Deckers also executed a

construction contract with DVC and Villalba Housing in the

amount of $4,471,000.00 (hereafter referenced to as the

“Villalba Project”). Deckers' services under these contracts

were to construct mixed residence complex apartments for the

elderly and for families that qualify for a social housing

program (collectively referenced to as "The Projects").

3. On February 6, 2003, Westernbank granted Deckers a line of

credit in the amount of $1,500,000.00 for the operational

expenses in the following construction projects:

(a) Remodelación del Residencial Público Luis Muñoz Rivera;

(b) Starbucks San Patricio Plaza Shopping Center; (c) Starbucks

Old San Juan; (d) Estacionamiento Municipal Guayama; (e) the

Villalba Project; and (f) the Comerio Project.

4. Westernbank's line of credit was guaranteed by the

accounts receivable of the above-listed construction projects,

including The Projects. Deckers and Westernbank executed before

a notary public several security agreements for the assignment

of the accounts receivable of The Projects, and executed

financing statements for these security agreements. The

financing statements were recorded before the Department of

State of Puerto Rico on March 18, 2003.

5. Subsequently, on November 26, 2003, Eurobank, granted a

loan to Deckers guaranteed by a security interest in the

accounts receivable of The Projects. The purpose of the loan was

for "the construction of the Comerio and Villalba projects,

guaranteed by a security interest in the accounts receivable

that the Comerio and Villalba construction projects would

generate." (Docket No. 1 ¶ 18).

6. Deckers and Eurobank executed before a notary public

certain security agreements for the assignment of the accounts

receivable of The Projects, and executed financing statements

for these security agreements. The financing statements were

recorded before the Department of State of Puerto Rico on

December 3, 2003.

7. Approximately two years later, on October 31, 2005, Deckers

filed a voluntary petition for relief under Chapter 11 of the

Bankruptcy Code. (Case No. 05-12871, Docket No. 1).

8. The case was later converted to a proceeding under Chapter

7 of the Bankruptcy Code on January 24, 2008. (Case No. 05-

12871, Docket No. 586).

9. The Chapter 7 Trustee (hereafter the "Trustee") filed a

Stipulation on October 6, 2008, regarding the outstanding sums

due to Debtor by DVC under The Projects. (Case No. 05-12871,

Docket No. 656). As a result of said Stipulation, DVC tendered

to Trustee the net amount of $900,000.00 to be kept in an

interest-bearing escrow account by the Trustee pending the

resolution of an adversary proceeding to be filed to determine

which security interest is superior between Eurobank and

Westernbank. (Case No. 05-12871, Docket No. 656).

10. The Stipulation was approved by the Court on November

17, 2008. (Case No. 05-12871, Docket No. 684).

11. Eurobank filed the instant Adversary Proceeding

against Westernbank on November 30, 2009, to determine the

priority and extent of its, and Westernbank's, lien over the

accounts receivable in The Projects. (Docket No. 1).

12. Westernbank and Eurobank were respectively closed on

April 30, 2010 by the Financial Institutions of the Commonwealth

of Puerto Rico, which appointed the FDIC as receiver. The FDIC

entered into purchase and assumption agreements, as well as

loss-share transactions, with Banco Popular de Puerto Rico and

Oriental Bank to assume all of the deposits and assets of

Westernbank and Eurobank, respectively. As a result of this,

Banco Popular de Puerto Rico substituted Westernbank as

Defendant, and Oriental Bank substituted Eurobank as Plaintiff

in the instant case.

13. Westernbank and Eurobank filed their cross motions for

summary judgment on May 13, 2011. (Docket Nos. 56, 57, 58, and

60).

14. Oral arguments on the motions for summary judgment

were held before the Court on October 26, 2011. (Docket No. 79).

II. LEGAL ANALYSIS

It is undisputed and admitted by both parties that their

respective perfected security interests do, in fact, cover the

accounts receivable over The Projects. Both parties agree that

Westernbank's security interest was recorded before Eurobank's

security interest at the Puerto Rico Department of State.

However, Eurobank claims that the general rule of "first in

time, first in right" does not apply to its security interest

because the same is a PMSI, which is excepted from the general

rule and takes priority over previously perfected security

interests.

To resolve the super priority issue among these competing

secured creditors, we begin our analysis by looking at the

priority dispositions of the Puerto Rico Uniform Commercial

Code.

A) Priorities under the Puerto Rico Uniform Commercial Code

The Puerto Rico Uniform Commercial Code, also known as the

Commercial Transactions Act (known in the Spanish language as

the "Ley de Transacciones Comerciales"), 19 L.P.R.A. §§ 401 et

seq., was enacted through Law No. 208 of August 17, 1995

(hereafter referenced to as the "PR-UCC"). By creating the PR-

UCC, the Puerto Rico legislature adopted nine (9) of the

thirteen (13) articles of the Model Uniform Commercial Code (the

"UCC"), the premier commercial statute which has been

incorporated, either in whole or in part, by the fifty (50)

states, the District of Columbia and the Virgin Islands.

Article 9 of the UCC, one of the articles adopted by the

PR-UCC, contains provisions regarding security interests,

negotiable instruments, and consignments. 19 L.P.R.A. §§ 2001-

2207. Those transactions covered by the Commercial Transactions

Act shall be applicable to, including "any transaction

(regardless of its form) which is intended to create a security

interest in personal property or fixtures including goods,

documents, instruments, general intangibles, chattel paper or

accounts." 19 L.P.R.A. § 2002(a). In order for the security

interest to be perfected over personal property, including

chattel paper and accounts, the financing statement must be

filed at the Puerto Rico Department of State. 19 L.P.R.A.

§ 2151(b).

Section 9-312 of the PR-UCC lists the order of priorities

with regards to conflicting security interests over the same

collateral. The same reads, at its pertinent parts:

(1) ...

(2) ...

(3) A perfected purchase money security interest

in inventory has priority over a conflicting

security interest in the same inventory and also

has priority in identifiable cash proceeds

received on or before the delivery of the

inventory to a buyer [under certain

circumstances].

(4) A purchase money security interest in

collateral other than inventory has priority over

a conflicting security interest in the same

collateral or its proceeds if the purchase money

security interest is perfected at the time the

debtor receives possession of the collateral or

within thirty (30) days thereafter.

(5) In all cases not governed by other rules

stated in this section (including cases of

purchase money security interests which do not

qualify for the special priorities set forth in

subsections (3) and (4) of this section),

priority between conflicting security interests

in the same collateral shall be determined

according to the following rules:

(a)Conflicting security interests rank

according to priority in time of filing or

perfection. Priority dates from the time a filing

is first made covering the collateral or the time

the security interest is first perfected,

whichever is earlier, provided that there is no

period thereafter when there is neither filing

nor perfection.

(b) So long as conflicting security

interests are unperfected, the first to attach

has priority.

(6) ...

(7) ...

19 L.P.R.A. § 2112.

When there are more than one perfected security interests

covering the same collateral, the general rule of priority is

that the security interest whose financing statement was

registered first at the Puerto Rico Department of State shall be

superior over the security interest whose financing statement

was registered later. 19 L.P.R.A § 2112(5). This general maxim

is known as the "first in time, first in right" rule. This rule,

however, is not absolute. One of the exceptions to the same is

the purchase money security interest. 19 L.P.R.A. § 2112(3)-(4).

i) Purchase money security interest ("PMSI")

The traditional concept of a PMSI is described as follows:

The purchase money secured creditor is often the

seller of a product who has retained a security

interest [over said product] to secure its

purchase price....

James J. White & Robert S. Summers, Uniform Commercial Code,

Hornbook Series, at 846 (5th ed. 2004).

In other words, "[a] purchase money security interest...can be

either an interest that a seller of property retains to secure

the property's purchase price or an interest taken by a creditor

who gives value to enable a debtor to acquire rights in the

collateral." Dana L. McAlister, Purchase Money Security

Interests and Their Continuing Priority as to Proceeds, 34

Boston College L. Rev. 655, 656 (1993).

PMSIs are granted "super priority" over a prior security

interest covering the same collateral in order to prevent a

"stranglehold" by a floating lienor on debtor's future access to

money from other creditors. By providing this preferential

treatment to PMSIs, the UCC tries to avoid the situation where:

an un-yielding creditor may be able to frustrate

future outside borrowing by his debtor, since any

future lender will be confronted with the fait

accompli of a prior perfected security interest

that gives the al-ready [sic] secured party

priority even for subseguent advances.[] Article

9 mitigates this undesirable consequence of the

floating lien by affording a special priority to

the ‘purchase money' lender. The Code's favorable

treatment of the purchase money lender rests ona

general policy...of giving new money priority

protection over old.

Thomas H. Jackson & Anthony T. Kronman, A Plea for the Financing

Buyer, Yale L.J., Vol. 85, No. 1-2, at 1 (1975). See also, 1A -

7B Secured Transactions under the UCC § 7B.05("the purchase-

money priority ‘'frees' the debtor to turn to other financers

when it decides to acquire new assets").

For these reasons, a PMSI will trump a previously perfected

security interest and disregard the general rule of "first in

time, first in right."

III. DISCUSSION

In order to consider whether Eurobank's security interest

qualifies for super priority status as a PMSI, Eurobank must

show that it either complies with Section 9-107(a) or Section 9-

(b) of the PR-UCC, 19 L.P.R.A. § 2007.

Section 9-107 of the PR-UCC states:

A security interest is a ‘purchase money security

interest' to the extent that it is

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(a) Taken or retained by the seller of the

collateral to secure all or part of its price, or

(b) taken by a person who by making advances or

incurring an obligation gives value to enable the

debtor to acquire rights in or the use of

collateral if such value is in fact so used.

Id.

A PMSI under Section 9-107(a) is "inspired by the

traditional conditional sales contract: the seller retaining

'title' to secure the purchase price of the goods...". 1A-7B

Secured Transactions under the UCC § 7B.04. Section 9-107(a) is

inapplicable to the instant case in light of the fact that

Eurobank's transaction consists of a financing transaction to

provide funds for the construction of the Comerio and Villalba

projects, and is not a sales agreement of any kind. Therefore,

Eurobank's security interest does not qualify as a PMSI under

Section 9-107(a).

Whether Eurobank's security interest qualifies as a PMSI

under Section 9-107(b), the Court must consider if Eurobank,

through the financing granted to Deckers, and the security

interests created therein: (1) extended new value to Deckers;

(2) to be used to enable Deckers to acquire rights in the

accounts receivable; and (3) whether Deckers used said value for

the intended purpose of acquiring rights over the accounts

receivable of The Projects. See MBank Alamo Nat'l Ass'n. v.

Raytheon Co., 886 F.2d 1449, 1453 (5th Cir. 1989) (the creditor

moving for PMSI consideration over accounts receivable must show

"(1) that it gave value; (2) that the value given enabled [the

debtor] to acquire rights in the accounts receivable; and (3)

that the accounts receivable qualify as collateral within the

meaning of the statute.").

These factors must be scrutinized in the following fashion:

(1) New value vs. antecedent debt. The purchase

money creditor took its interest to secure new

value either in the form of an advance, an

obligation or the delivery of the collateral

itself. As comment 2 to old Section 9-107 stated:

"any security interest taken as security for or

in satisfaction of a preexisting claim or

antecedent debt" is excluded from the purchase

money category.

(2) Acquisition vs. retention or production or

generation. The purchase money creditor enabled

the acquisition of the collateral rather than

enabling the retention of the assets or their

production or generation in the debtor

enterprise...

(3) Intent vs. happenstance. A creditor who

disbursed funds for general operational purposes

that did not involve acquisitions was not moved

into the purchase money category....

Secured Transactions under the UCC § 7B.04(emphasis added).

a) New Value

Both Eurobank's financing and security agreements over the

Villalba and Comerio Projects indicate that Eurobank did, in

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fact, advance funds to Deckers.2 Said financing was for the

construction of The Projects, guaranteed by a security interest

in the accounts receivable that each of the construction

projects would generate.

According to Section 1-201(44) of the PR-UCC, a person

gives value when he acquires rights:

(a) In return for a binding commitment to extend

credit or for the extension of immediately

available credit whether or not drawn upon and

whether or not a charge-back is provided for in

the event of difficulties in collection; or

(b) as security for or in total or partial

satisfaction of a pre-existing claim; or

(c) by accepting delivery pursuant to a

preexisting contract for purchase, or

(d) generally, in return for any consideration

sufficient to support a simple contract.

19 L.P.R.A. § 451(44). See, e.g., MBank Alamo, 886 F.2d at 1452

("The value requirement is satisfied by any consideration

sufficient to support a simple contract.").

Based on the above, it is clear from the contractual

documentation that Eurobank, through the financing extended on

November 26, 2003, meets the "value" portion of the PMSI

analysis.

2 Exhibit IX of Docket No. 57; Claim No. 54-1 of Case No. 05-12871(MCF);

Exhibit X of Docket No. 57; Claim No. 55-1 of Case No. 05-12871(MCF); and

Docket No. 1 ¶ 18.

b) The value enabled the acquisition of the

collateral

Both Eurobank and Westernbank cite the same case law to

support their respective positions as to whether Eurobank's

security interest over the accounts receivable of The Projects

qualify as a PMSI under Section 9-107(b):? Northwestern Nat'l

Bank v. Lectro Syst., Inc., 262 N.W.2d 678 (Minn. 1977), In re

Woodworks Contemporary Furniture, Inc., 44 B.R. 971 (Bankr. W.D.

Wis. 1984), MBank, 886 F.2d 1449, and First Interstate Bank of

Utah v. Internal Rev. Serv., 930 F.2d 1521 (10th Cir. 1991).

Of the four cases relied upon by the parties, the decision

of MBank Alamo, 886 F.2d 1449, provides us with the most

comprehensive discussion as to the general concept and

requirements of PMSIs. In MBank Alamo, the Court of Appeals for

the Fifth Circuit, with regards to the second and third prongs

of the test, the court expressed that:

To create a PMSI, the value must be given ina

manner that enables the debtor to acquire

interest in the collateral . This is accomplished

> From a philosophical standpoint, there has been some debate as to whether

accounts receivable can even enjoy PMSI status. Uniform Commercial Code,

Hornbook Series, at 847("Except when they are proceeds, security interests in

accounts receivable and other intangibles will not enjoy purchase money

status."). However, it has been considered that, "although traditionally the

only type of purchase money security interest the law has concerned itself

with is that in goods, there is no reason why the purchase money concept

should not apply to intangible property such as contract rights." In re

Woodworks, 44 B.R. at 972 (citing Gilmore, The Purchase Money Priority, 76

Harvard Law Review 1333, 1374).

Defendant has not raised the issue of whether accounts receivable qualify for

PMSI status. Therefore, the Court will make no determination whatsoever as to

the applicability of one viewpoint over the other on this matter.

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when a debtor uses an extension of credit or loan

money to purchase a specific item. See Ingram v.

Ozark Prod. Credit Assoc., 468 F.2d 564, 565 (5th

Cir. 1972); In re Dillon, 18 Bankr. 252, 254

(Bkrtcy.E.D.Cal. 1982) (PMSI lien attaches to

item actually purchased); Jackson & Kronman,

Secured Financing and Priorities Among Creditors,

88 Yale L.J. 1143, 1165 (1979) (PMSI priority

limited "to loans that can be traced to

identifiable, discrete items of property.").

Id. at 1453(emphasis added).

The decisive factors under the second and third prongs of

the three part test rely on the interplay between "value given"

and "acquisition of collateral." The collateral must be obtained

on or after the debtor receives the new value, and that said

collateral was obtained as a result of such value. Id.

The court in Northwestern, reasoned that the definition of

a PMSI "contemplates that the loaned funds be intended, and

actually used, for the purchase of an identifiable asset which

stands as the secured party's collateral." 262 N.W.2d at 680.

The Northwestern court denied the creditor super priority status

because "[t]his is not a case in which funds were advanced and

used for purchase of a receivable; the contract was already in

existence between Agate and Lectro when Cox loaned funds to

Agate and entered into a security agreement with it." Id. This

case supports the notion that accounts receivable that stem from

an already existing contract prior to obtaining new value by the

creditor, may not qualify for PMSI status.

In the case of Woodworks, 44 B.R. 971, 973, which makes

reference to the decision in Northwestern, the Bankruptcy Court

for the Western District of Wisconsin expressed that

transactions in which funds were loaned so that borrowers could

perform under preexisting contracts do not fall within the scope

of a PMSI.

Finally, in the case of First Interstate, 930 F.2d at

1526 - 1527, the Court of Appeals for the Tenth Circuit states

that, in a situation where a lender advances funds to a debtor

for operational expenses to allow the debtor to fulfill

preexisting contractual obligations, and for which the debtor,

in turn, extends a security interest over the accounts

receivable of said obligations to the lender, said transaction

does not constitute a PMSI.

An important distinction exists between funds

extended for asset acquisition and those extended

for the ordinary operation of business. A bright-

line demarcation must always exist between these

two purposes. To accept the lender's contention

in this case would be to blur, if not eliminate,

that line... Accordingly, we conclude that the

right to perform the pre-existing executory

contract in this case is not "collateral" or the

"rights in collateral" within the requirements of

the U.C.C.

Id.

The instant case contains a similar situation to the one

considered in Woodworks and First Interstate. Particularly as to

the fact that:

(1) we are dealing with a situation in which Deckers had

already incurred in preexisting contractual obligations at the

time it incurred in the financing with Eurobank (i.e., the

constructions contracts entered between Deckers and DVC and

Comerio Housing, as well as between Deckers and DVC and Villalba

Housing);

(2) the financing was obtained for purposes of allowing

Deckers to perform under the preexisting construction contracts;

and

(3) while the financing did allow Debtor to perform under

the construction contracts, the advance was not intended, nor

actually used, for the purchase of an identifiable asset which

stands as Eurobank's collateral (i.e., the accounts receivable).

See Northwestern, 262 N.W.2d at 679; Woodworks, 44 B.R. at 973;

First Interstate, 930 F.2d at 1526-1527.

The "acquisition" of Decker's right to generate and receive

accounts receivable under The Projects took place back on

January 10, 2002, when Deckers entered into the construction

contracts with DVC, Comerio Housing, and Villalba Housing.

Through the financing provided, Eurobank supplied funds to

Deckers for the construction of the Comerio and Villalba

Projects, and not for the specific purpose to allow Deckers to

purchase or acquire rights on any accounts receivable. The

accounts receivable were given as a security for the repayment

of the monies loaned for the construction of The Projects.

It is clear from the facts at hand that Eurobank's value

enabled Deckers to fulfill its obligations under the preexisting

construction contracts. Said value did not enable Deckers to

acquire any rights or interest over the accounts receivable of

The Projects. Furthermore, we are not faced with a situation in

which the funds were advanced exclusively for purposes of

allowing Deckers to acquire and/or purchase new accounts

receivables. Woodworks, 44 B.R. 973; MBank Alamo, 886 F.2d

1453. In other words, Eurobank "did nothing more than fund the

debtor's performance of its contracts in its ordinary business

operations; it did not enable the debtor to acquire a discrete

new asset." First Interstate, 930 F.2d at 1524.

In view of the foregoing, by having extended financing

solely to permit Deckers to perform under a pre-existing

executory contract, Eurobank's security interest in this case

does not qualify as "collateral" or the "rights in collateral"

within the scope of a PMSI pursuant to Section 9-107(b) of the

PR-UCC.

As a means to overcome the deficiencies of the PMSI test,

Eurobank proposes an alternate interpretation to its

transactions and its security interest thereto distinguishable

from the reasoning in the Woodwork case. Specifically, Eurobank

argues that it "is not claiming a security interest over the

"rights in the contract;' conversely, it is claiming a security

interest or priority over the part of the project receivables

representing the reimbursement of construction costs advanced by

Eurobank, its predecessor in interest.™

However, according to Eurobank's contractual documentation,

Burobank's security interest consists of "moneys, rights and

credits to be perceived under" The Projects (i.e., the accounts

receivable).”’ Said documentation in no way distinguishes between

accounts receivable and "the part of the project receivables

representing the reimbursement of construction costs." The Court

does not find any distinction between one characterization over

the other, constituting an issue of the proverbial "tomato

(/ta'mertou/), tomato (/te'ma:tou/)."° Furthermore, Eurobank has

not shown how this alleged characterization in any way

demonstrates how its value allowed the acquisition over new

collateral and contractual rights by Deckers, so as to comply

with the PMSI test.

Burobank also argues that it has superior rights to the

proceeds from the construction contracts for The Projects under

Article 1152 of the Puerto Rico Civil Code, 31 L.P.R.A. § 3224,

Docket No. 60 at 8(emphasis added).

° Exhibit IX of Docket No. 57; Claim No. 54-1 of Case No. 05-12871 (MCF), and

Exhibit xX of Docket No. 57; Claim No. 55-1 of Case No. 05-12871(MCF). (our

translation)

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due to the fact it notified its assignment of the contract

proceeds to the owners of The Projects, who, in turn,

acknowledged and consented to make direct payments to Eurobank.’

EBurobank, then, goes on to admit that "[n]Jotification to a

debtor of a potential account receivable is not a requirement

for perfection of the lien, " but that said notification "is to

establish clearly the proper payee of the contract funds, and to

protect the debtor from having to pay twice."®

At the oral argumentation for the cross motions for summary

judgment,’ Westernbank explained that the notification provisions

of Article 1152 is, in fact, a mechanism to protect a debtor

from having to pay twice in those cases where the indebtedness

has been assigned to a different creditor. However, contrary to

Burobank's assertion, Westernbank asserts that compliance with

the same does not control the issues of perfection and priority

of security interests under Article 9 of the PR-UCC.

The Court agrees with Westernabk's position that Article

1152 of the Puerto Rico Civil Code has no bearing with regards

to issues of perfection or priority of the instant security

interests. This matter is governed by Article 9 of the PR-UCC

because Section 9-102 (4) expressly excludes from its

dispositions those provisions of the Puerto Rico Civil Code

’ Docket No. 60 at 8.

® Docket No. 60 at 8(emphasis added).

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"with respect to pledges and with respect to transmission of

credits," such as the assignments contained in the case at bar.

19 L.P.R.A. § 2002(4) (emphasis added).

For the reasons stated above, the Court finds that

BFurobank's security interests do not fall within the scope of a

PMSI under Section 9-107 of the PR-UCC, 19 L.P.R.A. § 2007.

Consequently, the applicable priority scheme in the instant case

is the general rule of "first in time, first in right" contained

at Section 9-312(5) of the PR-UCC, 19 L.P.R.A. § 2112(5).

In light of the undisputed and admitted fact that

Westernbank filed its financing statement before Eurobank at the

Puerto Rico Department of State, the Court hereby finds that

Westernbank's security interest has priority over Eurobank in

the accounts receivable of the Villalba and Comerio projects.

ORDER

WHEREFORE, IT IS HEREBY ORDERED that Plaintiff's motion for

summary judgment (Docket No. 60) shall be DENIED; Defendants'

motion for summary judgment (Dockets No. 56 - 58) shall be

GRANTED; and all remaining matters (Dockets No. 65, 66, and 68)

are deemed MOOT.

Consequently, the Chapter 7 Trustee is hereby ORDERED to

disburse to Banco Popular de Puerto Rico the consigned amount of

$900,000.00, plus all accrued interest since deposited, within

Docket No. 79.

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thirty (30) days as a result of the "Motion for

Compromise."(Case No. 05-12871, Docket No. 656).

SO ORDERED.

San Juan, Puerto Rico, this 29th day of December, 2011.

BY THE COURT:

Mildred Caban Flores

U.S. Bankruptcy Judge

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