Robert borrows $500 from a pawnshop,leaving his class ring as collateral.Later,Robert borrows $200 from the bank.Robert signs a financing statement giving the bank a security interest in this ring.If Robert defaults on both loans,who has superior rights to the ring?

Question

Quizplus · Accepted Answer

The pawnshop has superior rights because it was the first to perfect the security agreement by taking possession of the collateral (the class ring). Perfection of a security interest can be achieved in several ways, including taking possession of the collateral, filing a financing statement, or obtaining control of the collateral. However, possession is the most effective way to perfect a security interest. Even though the bank also has a security interest in the ring, they do not have priority over the pawnshop because the pawnshop perfected their interest first.

Robert Borrows $500 from a Pawnshop,leaving His Class Ring as Collateral.Later,Robert