Farmer Kevin has 100,000 pounds of grain stored with ABC Warehouse (Warehouse).  Warehouse, in turn, has issued Kevin a negotiable warehouse receipt (dated October 1) for the grain. In desperate need of a new tractor, Kevin applies for a loan of $50,000 from ABC Bank Inc. (ABC).  As collateral for the loan, Kevin grants a security interest to Bank in “all of Debtor’s grain.”  Bank files a financing statement covering “all of Debtor's grain.” 

Five days later, Kevin obtains a loan from XYZ Finance Co. (XYZ) for $50,000 in order to purchase a new irrigation system.  To secure the loan, XYZ takes a valid security interest in the same grain; however, the security agreement describes the collateral as “October 1 warehouse receipt issued by Warehouse in favor of Debtor covering Debtor’s grain.”  Kevin immediately handed over the warehouse receipt to XYZ.

If Kevin later files bankruptcy, who will hold first priority to the grain?

1. ABC

2. The bankruptcy trustee

3. XYZ

4. All three will share equal priority