Bagels Café defaults on debts to Country Bank and Hillside Loan Company. Country Bank perfected its security interest before Hillside. The bank takes possession of the collateral in which it has a security interest. On a sale of the collateral, the proceeds will be applied first to

Question

Bagels Café defaults on debts to Country Bank and Hillside Loan Company. Country Bank perfected its security interest before Hillside. The bank takes possession of the collateral in which it has a security interest. On a sale of the collateral, the proceeds will be applied first to​

Quizplus · Accepted Answer

When two creditors have competing security interests, the creditor who perfected their interest first has priority. In this case, Country Bank perfected its security interest before Hillside, so it has priority. As a result, the proceeds from the sale of the collateral must first go towards paying off the debt owed to Country Bank before any remaining balance can be applied to the debt owed to Hillside Loan. Therefore, the answer is choice C which states that the proceeds will be applied to the balance of the debtor's debt to Country Bank.

Bagels Café Defaults on Debts to Country Bank and Hillside