Question

Becky borrows $100,000 from Bank to open a new restaurant. She gives Bank a security interest in all of her equipment, including equipment to be acquired in the future. Bank perfects the interest by filing a financing statement covering all of the collateral in a proper place. Becky uses all of the money Bank gave her to purchase equipment, but still needs pots and pans. Her brother Alex offers to lend her $1,000 for pots and pans if she will give him her guitar until she repays him. Alex promises to return the guitar on repayment. Becky agrees, Alex gives her $1,000, she gives Alex her guitar, and she buys the pots and pans. Four months later, Becky defaults in payments to both Bank and Alex. Bank repossesses all of Becky's equipment, including the pots and pans. Which of the following statements is correct?

a. Alex's interest in the pots and pans is superior to Bank's because it is a purchase money security interest. b. Bank's security interest in the pots and pans is superior to Alex's interest in the pots and pans. c. Bank did not have to file to perfect its security interest in the equipment because it has a purchase money security interest. d. Alex had to file to perfect his security interest.

Answer 1

Bank security interest is superior to Alex's interest

Step-by-step explanation:

Security interest is the legal right granted by a borrower to the lender to take over the the debtors property in case he defaults in his repayment term.

Looking at the scenario , both the bank and Alex have security interest in Becky's property , however , the banks interest is superior as it Becky has initially used her properties including the ones to be acquired in future as security for her loan with the bank.

Moreover, the bank has perfected the security interest by filling a financial statement covering all of the collateral