Identifying the Facts and Issues

To create a security interest in personal property that is not held by the lender, there must be a written

security agreement

that describes the personal property, also referred to as

collateral

. The secured party must give the debtor something of value, and the debtor must have rights in the property. When this occurs, the creditor's rights

perfect

, which gives the creditor an enforceable

perfected security interest

.

Assessment question

To perfect a security interest in personal property, the lender may file a

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. The purpose of this document is to give third parties public

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the security interest.

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interest has a higher priority than

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interest in relation to personal property.

Assessment question

State Bank had

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in the inventory, whereas Tunes Hut had

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in the inventory. Because of this, State Bank's claim

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take priority over Tunes Hut's claim.

Assessment question

What If the Facts Were Different?M&D Enterprises, Inc., obtained financing from State Bank for the purchase. At the closing for the purchase of the franchise, the Jacksons signed the loan documents on behalf of M&D Enterprises, Inc., which included a security agreement with the store inventory as collateral. They also signed the franchise documents between M&D Enterprises, Inc., and Tunes Hut, which included a security agreement with the store inventory as collateral. The next day, Tunes Hut filed a financing statement. A month later, State Bank filed a financing statement.Upon default, Tunes Hut terminated the franchise and took possession of the inventory. The bank filed a suit in a state court against Tunes Hut, claiming a perfected security interest in the inventory with priority over Tunes Hut's claim. Did the bank have a perfected security interest and, if so, did that interest take priority over Tunes Hut's claim?Given these facts, State Bank

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have a perfected security interest. Tunes Hut

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have a perfected security interest.

Assessment question

If two creditors file financing statements perfecting their security interest in the collateral, then the

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interest to be perfected has priority. Under these facts,

select answer

has priority.