Debtor wants to obtain a $10,000 line of credit from Bank for his business, to be withdrawn as needed and to be repaid in full within 6 months. The security agreement covers “all of debtor’s inventory, accounts and equipment, including after acquired.” Bank files a UCC-1 financing agreement, which included the names of the debtor and the secured party, a description of the collateral, the debtor's corporate statuts, and addresses for each party; however, the Debtor's address was incorrect.
Debtor ran into unexpected operating costs in the startup of his business, and defaulted in repayment of the line of credit. Debtor sold all of his equipment, inventory and accounts for cash as he became desperate. Bank demands that Debtor turn over the cash received in exchange for the sale of his equipment. Which of the following is correct?
1. Bank's demand is improper because the description of the collateral in the security agreement did not cover proceeds.
2. Bank's demand is improper because Bank would still have a security interest in the equipment and thus the cash received from the sale is not proceeds of the collateral.
3. Bank's demand is proper
4. Bank's demand is improper because Bank's security interest was not properly perfected due to the mistake in the UCC-1 filing