On January 1, Trumpet Corp. borrowed $1,000,000 from Gullible Bank. To secure the loan, Trumpet gave Gullible a security interest in all of its equipment, inventory, accounts and chattel paper, whether now owned or hereafter acquired. On January 2, Gullible promptly filed a financing statement evincing its interest. Thereafter, on February 1, Trumpet bought a new machine, costing $10,000, under an installment sales contract, that required Trumpet periodically to pay for the machine and granted the seller, Naïve Products, a security interest in the machine sold. On February 10, Naïve filed a financing statement evincing its security interest in the machine that Trumpet bought. Trumpet also needed some additional inventory, that was to be financed by Sleepy Finance Co. and in which Sleepy was to have a security interest to secure its payment for this additional inventory. This inventory was delivered to Trumpet on April 1, and on the same date Sleepy paid the suppliers of this inventory. Sleepy filed a financing statement on April 10. On April 25, Aggressive Finance Co. bought the accounts receivable and chattel paper from Trumpet in the ordinary course of its business. It’s impossible to “take possession” of accounts, of course, but Aggressive notified the account debtors to make payment directly to it. Aggressive did take possession of the chattel paper, though.

1. As between Gullible and Naive, who has priority in the machine Naive sold to Trumpet?
2. Which party has priority in the accounts and chattel paper?

PART 2

Return to the problem, wherein Trumpet borrowed from Gullible Bank. Assume that Trumpet has now defaulted to all of its secured creditors. What do the default and enforcement provisions in Article 9 allow the various secured creditors to do?

Answer rating: 100% (QA)

The right of an individual to retain or detain as security any movable property that belongs to someone else against a general balance of the account ... View the full answer