Ryan Lochte, Olympic medalist and aspiring fashion designer, applied to borrow $100,000 from New York City Bank (NYC Bank) to kick-start his fashion empire. To secure his $100,000 loan, Lochte agreed to offered to put up his five Olympic medals as collateral. An effective security agreement was created and authenticated by Lochte, but NYC Bank did not file a financing statement. A few months later, Lochte borrowed $50,000 from Paris Bank, once again putting his five medals as collateral. Lochte authenticated an effective security agreement and Paris Bank submitted a financing statement covering the medals, but unfortunately for Paris Bank, the financing statement was missing Ryan Lochte’s name so the filing office rejected it.
The business side of Ryan Lochte’s fashion empire was a failure and as a result Lochte defaulted on both of his loans. NYC Bank and Paris Bank are now in dispute as to who has priority over the five Olympic medals. Who has first priority in the medals?
1. Paris Bank, because its security interest was the first to be “perfected”
2. NYC Bank, because its security interest was the first to “attach.”
3. NYC Bank, because it was the first lender to whom Lochte offered to put up his five medals as collateral.
4. Paris Bank, because they were the first to file a financing statement covering the five medals.