Simtech Inc needs $1 000 000 for research related to a new product it is developing. It has been discussing a loan with Toronto Bank. On January 10, the Bank files a financing statement to register a security interest in all the assets of Simtech. On January 12, Simtech borrows $20 000 from one of its shareholders secured by a security interest in all the assets of the corporation. The shareholder files a financing statement to register its security interest on the same day. On January 15, the Bank and Simtech agree that the Bank will lend Simtech $1 000 000 and Simtech agrees to give the Bank a security interest in all of its assets. If Simtech defaulted on the loans to both the shareholder and the Bank, the shareholder's security interest would have first priority because the shareholder advanced its money first, before the Bank and before its security interest was perfected.

Question

Quizplus · Accepted Answer

The priority of security interests is generally determined by the order of filing, not the order of advancing funds. Since the Bank filed its financing statement first, it would have priority over the shareholder's security interest.

Simtech Inc Needs $1 000 000 for Research Related to a New