On December 1, 2008, First Bank loaned $10,000 to John to enable him to purchase a sweet home theater system for his home, and took a security interest in the system. On May 1, 2009, First Bank’s manager heeded the advice of the legal department and filed a UCC-1 covering the theater system on behalf of First Bank.
On May 2, 2009, John took out a loan from Second Bank and put up the same home theater as collateral. Second Bank promptly filed a financing statement the same day.
Years later, on September 1, 2013, First Bank filed an amendment indicating that it was a continuation statement covering the same collateral.
John eventually defaulted on several payments to First Bank, and on May 2, 2014, First Bank moved to repossess the home theater. Second Bank objected and demanded that First Bank turn over the home theater to Second Bank because Second Bank had priority. Is Second Bank correct?
1. No. First Bank properly continued its financing statement, preserving its priority for another five years.
2. Yes. First Bank’s financing statement was not properly continued, and its perfection lapsed before First Bank's attempted repossess, so its security interest is deemed never to have been perfected as against Second Bank.
3. No. First Bank's security interest was continuously perfected and retains priority over Second Bank's security interest, without regard to whether First Bank's financing statement was properly continued.
4. Yes, because Second Bank is a buyer in the ordinary course of business, and therefore takes priority over First Bank.