Reference no: EM133684297

Question

Alicia Kent has a securities account with the brokerage firm of Hale and Hardy. Among the securities credited to the account are 5,000 shares of Interpersonal Communications Incorporated (ICI), whose shares are regularly traded on the New York Stock Exchange. ICI shares are currently trading in the $9 to $10 range, and are thought to be a relatively stable investment vehicle. In order to meet some unexpected medical bills, Alicia arranges to borrow $20,000 from The National Bank of Royalton, granting the bank a security interest in her ICI shares to secure the loan.

1. To facilitate this transaction, The National Bank of Royalton opens a securities account with Hale and Hardy. Alicia then orders Hale and Hardy to transfer the 5,000 shares of ICI held in her account into the account newly opened by the bank. The bank has, of course, agreed to transfer these shares back into Alicia's account upon her repayment of everything due under the loan. Has the bank perfected its security interest in these shares by control?

2. Suppose, instead, that Alicia and a representative of The National Bank of Royalton had signed a written agreement by the terms of which Alicia authorized the bank, upon any default on her part with respect to the loan agreement, to send Hale and Hardy an entitlement order directing the brokerage to sell Alicia's ICI shares and deliver the proceeds of the sale to the bank. Would this signed agreement be sufficient to give the bank control over these ICI shares in Alicia's account? If not, what more would be required?