Efrem owns Fans & Players, a retail sporting goods shop. When Great Hill Lodge, a new ski resort, is built in the area, Efrem decides to expand and borrows a large sum from Hometown Bank. The bank takes a security interest in Efrem's present inventory and any after-acquired inventory as collateral for the loan. The bank properly perfects the security interest by filing a financing statement. Efrem's business is profitable, and he begins doubling his inventory. A year later, an avalanche destroys the ski slope and lodge. Efrem's business takes a turn for the worse, and he defaults on his debt to the bank. The bank seeks possession of his entire inventory, even though the inventory is twice as large as it was when the loan was made. Efrem claims that the bank has rights to only half of his
inventory. Is Efrem correct? Explain.
What will be an ideal response?
No. Hometown Bank will prevail because it held a properly perfected security interest in Efrem's entire inventory, not just in specific items or in the value of the inventory at the time the loan was made. The entire inventory (the present inventory and any inventory thereafter acquired) was given as collateral for the loan, and, regardless of the fact the inventory is now twice as large, the bank can rightfully take possession of the entire inventory on Efrem's default in his payments on the loan.
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