You are the chief executive officer of Money Games Inc.(MGI), which has begun to market Borrow & Spend, a video game set in the world of finance. To buy ads, MGI borrows $50,000 from First Savings Bank. On MGI's behalf, you sign a note for the loan and offer its accounts receivable as collateral. You sign a security agreement that describes the collateral. The bank does not file a financing statement. Has the banks security interest attached If so, when?
Thank you for the opportunity to help you with your question!
The bank's security interest has attached, but it has not perfected its
security interest. Typically in a closing for a secured loan, the
borrower executes and delivers the note and security agreement and then
the bank authorizes the release of the funds to the borrower. When the
funds are released, the bank's security interest has attached because it
has an executed security agreement describing the collateral and has
given something of value for the secured interest (the loan).
While the bank has a secured claim on the borrowers accounts receivable
if there is a default on the loan, it has not perfected its security
interest until it files the financing statement in the proper
jurisdiction which would be the jurisdiction of incorporation of the
corporation. Until it perfects its security interest, its claim against
the accounts receivable will be subordinate to claims of other secured
creditors who have perfected their security interest and it may lose
priority to other creditors who perfected ahead of it.
Please let me know if you need any clarification. I'm always happy to answer your questions.
Jun 14th, 2015
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