Ajax Corporation borrowed $50,000 from National Bank, giving National a security interest in its factory equipment. The agreement stated that the equipment would be security for this $50,000 loan and any future loans that National made to Ajax. National filed a valid financing statement. Over the next several months, Ajax borrowed another $100,000 from National. No additional financing statements were filed. Ajax has not made any payments on its loans from National. Ajax defaults on these loans. National wants to foreclose on the collateral. Assuming this security agreement is valid and perfected, how much of National's debt is secured?
A) None, because this was not a purchase money situation.
B) Only the first $50,000 because financing statements were not filed on the last $100,000.
C) Only the first $50,000 because future advances clauses are not valid.
D) The entire $150,000 is secured.
A car dealer borrowed $500,000 from a bank and signed a security agreement giving the bank a security interest in "all current inventory, and all inventory acquired in the future." The bank forgot to file a financing statement. One year later, the car dealer defaults. At the time of default, the dealer owed $400,000 and had 275 cars in inventory, only 15 of which had been in inventory when the security agreement was signed. What can the bank do with respect to the dealer's inventory?
A) Repossess all the cars, sell them, and keep all of the proceeds.
B) Repossess all the cars, sell them, and keep the proceeds, but not more than $500,000.
C) Repossess all the cars, sell them, and keep the proceeds, but not more than $400,000.
D) Repossess only the 15 cars that were in inventory when the security agreement was signed, sell them, and keep the proceeds, but not more than $400,000.
E) Not repossess any of the cars because the bank has not filed a financing statement.
Fourthbank lent $50,000 to Mary, and took a security interest in 1,000 shares of Mary's stock in Specialized Motors. The bank took possession of the stock certificates. Mary then borrowed $20,000 from her brother, and signed a security agreement with her brother. Her brother immediately filed a financing statement. If the stock is worth $60,000 and Mary defaults on both loans, what is the outcome?
A) Fourthbank gets $50,000 and her brother gets $10,000.
B) Fourthbank gets $40,000 and her brother gets $20,000.
C) Fourthbank and her brother split the proceeds in a 5:2 ratio.
D) Her brother gets $20,000 and Fourthbank gets nothing.
E) Fourthbank gets $50,000 and her brother gets nothing.
Sam went to Stable National Bank, borrowed $1,000, and granted a security interest in his sailboat to the bank. This security interest attached on March 1 and was perfected when the bank filed a financing statement on May 15. On April 12, Sam went to Solid National Bank, borrowed $2,000, and granted a security interest on the same sailboat. Solid perfected its security interest by filing a financing statement on April 20. Sam defaulted on both loans in June, having paid off none of the principal on either loan. Both banks want to repossess the boat. If the boat can be sold for $1,200, how much of the $1,200 would each bank be entitled to receive?
A) Stable: $1,000; Solid: $0
B) Stable: $1,000; Solid: $200
C) Stable: $400; Solid: $800
D) Stable: $0; Solid: $800
E) Stable: $0; Solid: $1,200
JKL, Inc. operates a retail appliance store. JKL borrows $100,000 from First Bank, giving the bank a security interest in all of its current and after-acquired inventory. The bank properly perfects its security interest. Later, JKL buys some additional inventory from Wholesalers, Inc. JKL cannot pay for the inventory purchase, so it gives Wholesalers a security interest in this inventory. Wholesalers perfects its security interest. JKL defaults on both these loans. Assuming any notice required is properly and timely given, who has priority in this after-acquired inventory?
A) First Bank has priority, because it was first to attach.
B) First Bank has priority, because it was first to perfect.
C) Wholesalers has priority, because this was after-acquired inventory.
D) Wholesalers has priority, because this was a purchase money security interest.
John bought a television from Jake's Appliance Center for his personal use. John could not pay cash for it, so he signed a note and gave Jake's a security interest in the television. Jake's did not file a financing statement. About 6 months later, John sold this television to a neighbor, Jane, who did not know about Jake's security interest in it. John stopped making payments on the note to Jake's, and now Jake's wants to repossess the television from Jane. Can Jake's repossess this television from Jane?
A) Yes; Jake's security interest survives this sale to Jane.
B) No; Jane is a buyer in the ordinary course of business, who takes the television free of any security interest.
C) No; Jane is a buyer of secondhand consumer goods, who takes the television free of any security interest.
D) No; Jake's did not perfect the security interest, so it is not valid against third parties like Jane.
E) No; Jake's security interest did not attach, so it is not valid against anyone, including Jane.