Reference no: EM133065119

Mary is the sole owner of Hi-Value Shoe Store, a small business located in a suburban working-class community. She inherited the business from her Aunt Marty three years ago. Up until then, business had been slow because of the declining economy. Lately, however, business has picked up, and revenues have doubled because of an increase in employees at the neighboring manufacturing plant. The plant recently received a valuable contract from the federal government to produce bulletproof vests. As a result of the increase in business, Mary hired two new full-time employees but was short on the funds necessary for expansion of the business. Mary was able to obtain a loan from Community Bank, but the bank required a security interest and that Mary be personally liable on the note. The language of the security agreement contained the following clause: "The note is secured by the inventory of Hi-Value Shoe Store, currently owned and any later acquired inventory, until said note is fully paid and satisfied." The bank immediately perfected the security interest by filing a financing statement. Mary decided to purchase inventory from ABC Wholesale Suppliers (ABC) on credit a few weeks after obtaining the loan from the bank. She took possession of the inventory on April 16. ABC required that she sign a promissory note and security agreement, with the inventory being listed as collateral. For at least one year, Mary was able to make payments on both obligations from the proceeds of the business. Unfortunately, the manufacturing plant lost its government contract and eliminated 50% of its workforce over a six-month period. As a result, Mary's business lost customers and began to operate at a loss. It became unable to pay its obligations to both the bank and ABC and ended up defaulting on both loans. Both secured parties sought to repossess the inventory from Mary's store, sell the inventory, and then hold Mary personally liable for any deficiency. Mary, aware that she might be held personally responsible for the debt, considered declaring bankruptcy.

Questions

-Discuss and determine which secured party has a priority under UCC Article.

-Assume that the shoe store has sold some of the inventory to Lindsay, a college student. Would the secured parties be able to repossess the shoes from Lindsay?

-What affect would Mary's filing of Chapter 7 bankruptcy have on the UCC Article 9 foreclosure process?