On January 1, 2012, Adam borrowed $50,000 from First Bank, to be secured by the inventory of Adam’s General Store (which Adam operates as a sole proprietor). First Bank’s lawyer drafted a security agreement, which stated: “Obligation to be secured by all assets of Adam’s General Store. Furthermore, any subsequent security interest granted by Debtor in these assets are void unless approved by First Bank.” After signing this agreement, Adam gave First Bank his permission, via a signed writing to file a UCC-1, which also listed as collateral “all assets of Adam’s General Store,” and First Bank filed such a financing statement in the proper office.
On March 1, 2012, Adam borrowed more money from Regions Bank. Adam executed a security agreement which listed as security, “all inventory,” and Regions Bank files a UCC-1 reflecting the same. In May 2012, First Bank amended (and Adam re-signed) the original security agreement, changing the collateral description to “all inventory including after-acquired.”
The next month, Adam defaults on both of his obligations. Which of the following is correct?
1. First Bank’s security interest takes priority over Regions Bank because First Bank was the first to file.
2. Regions Bank’s security interest takes priority over First Bank’s because Regions Bank was the first to perfect its attached security interest.
3. Regions Bank's security interest has priority over First Bank, because First Bank's UCC-1 had a flawed (supergeneric) description of the collateral
4. First Bank is the only creditor with a valid security interest because Adam never obtained First Bank’s approval before purporting to grant Regions Bank a security interest, as required by the First Bank security agreement.