On September 1st, 2011, Joe went to ABC Bank to get a $15,000 loan to work on his old muscle car. Joe agreed to use his prized mint condition Babe Ruth baseball card as collateral. Joe authenticated a security agreement that provided an accurate description of the card. Bank told Joe that Bank had already run a credit check on him and approved the loan, and that Bank would advance him the $15,000 on September 6.
Wanting the money that same day, Joe went to XYZ Bank later that day seeking another loan for $15,000, and agreed to use the same Babe Ruth card as collateral. Joe authenticated another security agreement granting XYZ Bank a security interest in the Babe Ruth card.
On September 6, ABC Bank advanced the $15,000 loan to Joe. Neither ABC Bank nor XYZ Bank has filed a financing statement. Which statement is correct?
1. ABC Bank has the only valid security interest in the card; once Joe granted a security interest to ABC Bank, he no longer had the ability to grant a security interest to another creditor because of the derivative title principle.
2. ABC Bank has priority over XYZ Bank because ABC Bank's security interest was the first to attach.
3. XYZ Bank has priority over ABC Bank because XYZ Bank's security interest was the first to attach.
4. None of the above.