Reference no: EM132233443
Suppose that on July 1, 2010, Anne took out a $50,000 loan from PNC Bank to start two restaurants. That same day, because she had little collateral at the time, Anne also executed a security agreement with the bank for all after-acquired property as collateral, including all her inventory, fixtures, materials, and industrial-grade kitchen equipment.
While Anne was purchasing the kitchen appliances, she realized she still did not have enough funds to cover everything she needed. So, on August 1, 2010, she executed another security agreement with Industrial Kitchen Supplies, Inc. and described all of the kitchen fixtures and appliances as collateral for her purchasing the equipment.
Once again, Anne's business planning skills failed her, and she ran out of money before opening her restaurants. So, on September 1, 2010, she went to another bank, Wells Fargo, and got a $5,000 loan via a security agreement. She used the kitchen equipment in her restaurant as collateral.
Unfortunately, in February 2011, Anne could not generate enough profits at her new restaurant to pay her monthly loan payments. That month, Anne defaulted on her loans to all three creditors.
PNC Bank perfected the interest (filed a financial statement) in the kitchen equipment exactly one month after Anne defaulted on her loan.
Industrial Kitchen Supplies, Inc. never did perfect the interest in the kitchen equipment.
Wells Fargo perfected the interest (filed a financial statement) in the kitchen equipment immediately upon Anne's failure to make her loan payment in February 2011.
As to each question, provide the correct answer AND explain why it is the correct answer.
1. Generally, who has priority over unsecured creditors?
a. A buyer in the ordinary course of business.
b. Debtors
c. Automatically perfected parties.
d. Parties with secured interests.
e. A buyer in the ordinary course of business.
f. None of these.
2. If both parties are secured, such as with PNC Bank and Industrial Kitchen Supplies, the determination of priority to collateral moves to considerations of _______________.
a. Whether the creditor is an individual or merchant.
b. Perfection of the security interest only.
c. Time and amount of each party’s loan.
d. The amount of each party’s loan.
e. Time and perfection.
3. Who in this scenario has the highest priority in repossessing the collateral?
a. PNC Bank, because it was a secured creditor and the first to loan money to Anne.
b. PNC Bank, because it loaned Anne the most money.
c. Wells Fargo Bank and PNC Bank, equally, because they were secured perfected creditors.
d. Industrial Kitchen Supplies, Inc., because it was a secured creditor and originally owned the kitchen equipment.
e. Wells Fargo Bank, because it was the a secured creditor and was the first to perfect.