Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 2

Spotlight on Radio Shack-Priorities. In June 1995, Michael and Debra Boudreaux, doing business as D J Enterprises, Inc., bought a retail electronics store operated under a franchise from Radio Shack. The Boudreauxes borrowed from Cabool State Bank to pay for the business and signed loan documents and a financing statement, which identified the Boudreauxes as "Debtors." Elsewhere on the financing statement, the bank identified "D J Enterprises, Inc., Radio Shack, Dealer, Debra K. Boudreaux, Michael C. Boudreaux" as "Debtors." The statement covered, in part, the store inventory. Before the end of the year, the Boudreauxes changed the name of their business to Tri-B Enterprises, Inc. In January 1998, the store closed. The next month, Radio Shack terminated the franchise and, despite the lack of a security interest, took possession of the inventory, claiming the Boudreauxes and Tri-B owed Radio Shack $6,394.73. The bank filed a suit in a Missouri state court against Radio Shack, claiming a perfected security interest in the inventory with priority over Radio Shack's claim. Did the bank's security interest take priority over Radio Shack's claim? Why or why not? [ Cabool State Bank v. Radio Shack, 65 S.W.3d 613 (Mo.App. 2002)] (See Priorities.)