Info-Tech Ltd Is a Distributor of Computers

Multiple Choice

Info-Tech Ltd is a distributor of computers.Info-Tech borrowed $500 000 from the Bank of Montreal in 2008.In its written agreement, Info-Tech agreed pay back the loan over four years.As security for the loan, it gave the bank a security interest in all of its present and future assets.The bank never filed a financing statement to perfect its interest.In September 2009, Info-Tech still owed $400 000 to the bank.It also owed $40 000 to Computer Sales Inc, its primary supplier.Info-Tech defaults on its loan payments and its payments to Computer Sales.Computer Sales sues Info-Tech and gets a judgment for $40 000.It then takes possession of Info-Tech's inventory and starts selling it off.The bank finds out and claims that its security interest prevails over Computer Sales.Which of the following best describes the legal position of the parties?

A) The bank is entitled to the inventory because its interest attached before the judgement in favour of Computer Sales.
B) Computer Sales is entitled to the inventory because, as a supplier it has a purchase money security interest.
C) Computer Sales is entitled to the inventory because, as a judgment creditor in possession of the inventory, it prevails over the bank's unperfected security interest.
D) The bank is entitled to the inventory because it has a security interest in the inventory and Computer Sales does not.
E) The bank is entitled to the inventory because it is owed much more than Computer Sales.