SECURED TRANSACTIONS Flashcards
On January 1, a bank made a loan to a bike shop. The bank took a security interest in the inventory in the shop. By its terms, the security agreement extended to future loans made by the bank to the bike shop. On the same day, the bank filed a valid financing statement. This statement did not reference future advances. On April 1, a second bank made a loan to the bike shop. This loan was secured by the equipment and inventory in the shop. The second bank immediately filed a financing statement related to this loan. On July 1, the bike shop paid off its loan to the first bank. On October 1, the first bank made another loan to the bike shop that was also secured by the inventory in the shop. The first bank did not file a new financing statement, but its prior financing statement was still valid. On December 1, the shop defaulted on both of its outstanding loans. Who has priority in the bike shop’s inventory?
The first bank, because its financing statement was filed in January.
The first bank, because its security interest only covered inventory.
