Last year, American Bank loaned $75,000 to Ms. Luna, who wanted to expand her pretzel shop in downtown Columbia.  Prior to approving Ms. Luna for the loan, American Bank filed a valid financing statement, which provided the following collateral description:  “All of Debtor’s equipment and inventory.”  Later, American Bank obtained a valid security agreement, which claimed an interest in “all of the debtor’s equipment presently owned or after-acquired.”

Unfortunately for Ms. Luna, the expansion was going way over budget and she found herself needing an additional $50,000.  This time she decided to go to National Bank for the money.  National Bank would like to secure the loan by taking a security interest in Ms. Luna’s inventory.  If it did so:

1. National Bank would be assured of first priority as to Luna's inventory because American Bank does not have a valid security interest in Luna’s inventory

2. National Bank would be assured of first priority as to Luna's inventory because American Bank's security interest in that inventory would not be properly perfected because the financing statement was filed before the security agreement and the collateral description doesn't match the description in the security agreement.

3. National Bank would be assured of first priority as to Luna's inventory, even though American Bank currently has a valid security interest in Luna's inventory.

4. National Bank would not be assured of first priority as to Luna's inventory, even though American Bank currently does not have a valid security interest in Luna's inventory.