Reference no: EM131791787

ABC financed its dry cleaning equipment with a loan from Second Bank. Second Bank properly perfected its interest by filing. The security agreement included an after-acquired property clause covering future equipment ABC might acquire.

Third Bank loaned ABC money to finance the purchase of more equipment, with ABC agreeing to give Third Bank a security interest in the new equipment. Third Bank filed to perfect on the 15th even though ABC acquired the new equipment on the 3rd.

If ABC defaults on both loans and files for bankruptcy, what happens to the equipment?

Question 10 options:

Second Bank and Third Bank will divide the equipment, the trustee in bankruptcy will have no claim on the equipment.

The trustee in bankruptcy gets the equipment. Federal law (bankruptcy) prevails over state law (Article 9).

Second Bank has priority on all the equipment, it filed first and had an after-acquired property clause.

Second Bank has first priority on the original equipment and second priority on the new equipment; Third Bank has first priority on the new equipment (PMSI) and second priority on the old equipment.

Second Bank has first priority on the original equipment and second priority on the new equipment; Third Bank has first priority on the new equipment (PMSI) and no claim on the original equipment.