Nick Sabol, doing business in the recording industry as Sound Farm Productions, applied to Morton Community Bank for a $ 58,000 loan to expand his business. Besides the loan application, Sabol signed a promissory note that referred to the bank’s rights in “any collateral.” Sabol also signed a letter authorizing Morton Community Bank to execute, file, and record all financing statements, amendments, and other documents required by Article 9 to establish a security interest in his state. Sabol did not sign any other documents, including the financing statement, which contained a description of the collateral. Two years later, without having repaid the loan, Sabol filed for bankruptcy. The bank claimed a security interest in Sabol’s sound equipment.
(a) The first group will list all the requirements of an enforceable security interest and explain why each of these elements is necessary.
(b) The second group will determine if Morton Community Bank had a valid security interest.
(c) The third group will discuss whether a bank should be able to execute financing statements on a debtor’s behalf without the debtor being present or signing them. Are there are any drawbacks to this practice? Explain.