AutoUniverse,a new car dealer,borrowed $500,000 from a bank and signed a security agreement giving the bank a security interest in "all current inventory,and all inventory acquired in the future." The bank forgot to file a financing statement.One year later,AutoUniverse defaults.At the time of default,AutoUniverse owed $400,000 and had 275 cars in inventory,only 15 of which had been in inventory when the security agreement was signed.No other creditor had a security interest in the cars.What can the bank do with respect to the cars in AutoUniverse's inventory?

Question

Quizplus · Accepted Answer

The bank has a security interest in all of AutoUniverse's current and future inventory, and even though they forgot to file a financing statement, their security interest is still valid. The bank can repossess all 275 cars, but they can only keep the proceeds up to the amount that AutoUniverse owed at the time of default, which is $400,000. Therefore, option C is the best choice. Option B is incorrect because the bank cannot keep more than what AutoUniverse owed at the time of default. Option D is incorrect because the bank has a security interest in all of the inventory, not just the 15 cars that were in inventory at the time of signing the security agreement. Option E is incorrect because the security interest is still valid even though the bank forgot to file a financing statement.

AutoUniverse,a New Car Dealer,borrowed $500,000 from a Bank and Signed