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Question: Mr. and Mrs. Burton opened a joint bank account with Davidson State Bank in February of 2013. The...

Mr. and Mrs. Burton opened a joint bank account with Davidson State Bank in February of 2013. The names on the account were listed as Benjie F. Burton and Debbie C. Burton. A short time after opening the account, the couple purchased a lawn equipment business in the nearby town of Plum Creek. From January of 2014 until October of 2016 the Burtons executed and delivered five separate promissory notes to the bank. In each note, they promised to pay the bank the amount of the note plus interest. For each of these notes the

bank prepared a UCC-1 form giving the bank a security interest in one or more the assets owned by the Burtons, whether consumer goods or an asset of the lawn equipment business. The Burtons signed each of these UCC-1 forms at the time of the loan. All of the loan agreements, notes, and the UCC-1 forms were signed in the names “Benjie F. Burton” and “Debbie C. Burton.” The bank filed each UCC-1 financing statement in the correct office (the Secretary of State for the Commonwealth of Virginia in Richmond, VA) for each of the security agreements. In each filing, the bank listed the debtors as “Benjie F. Burton” and “Debbie C. Burton,” and each was signed by the couple in those names. All five of the agreements were in effect at the time of the lawsuit.

In November of 2016 the Burtons were seeking additional financing from City Bank & Trust. City Bank & Trust agreed to extend them credit, prepared a promissory note, security agreement, and UCC-1, and had each signed by the Burtons. Mr. Burton signed these documents “Benjamin Burton,” and his wife signed as “Debbie C. Burton.” City Bank & Trust then properly filed the UCC-1 in the appropriate office.

In July of 2017 the Burtons defaulted on their loans from Davidson State Bank and from City Bank & Trust. Each bank claimed priority on the collateral. Davidson State Bank asserted that it was “first in time and first in right.” City Bank & Trust asserted that, while State Bank had indeed filed first, it filed incorrectly. According to City Bank & Trust, Mr. Burton’s legal name, as shown on his birth certificate and his Social Security card was Benjamin Burton. Davidson State Bank had filed a financing statement against a “Benjie F. Burton,” and no such person existed. Last State Bank countered that Mr. Burton’s driver’s license, and federal income tax returns were acquired and/or filed under the name “Benjie F. Burton,” making its filing sufficiently accurate and legally effective.

Required: How should this case be resolved? Which Bank should prevail against the Burtons? Be certain that you adequately explain and justify your answer.

Answer 1

Davidson state bank was the first to issue loan to Mr and Mrs. Burton and the name is found correct as per driving License and Income Tax filed returns. Therefore, Davidson State Bank is first to claim the collateral. As, birth certificate is a less important document and also it is not required for verification during bank processes it’s importance is less. However, both the banks have the right to recover their loans from the collateral, but initially Davidson Bank has the right. After recovering of amount offered by Davidson Bank, the City Bank and Trust will recover the money from the collateral. The other reason behind this is that the Davidson State Bank was first to offer the loan in the year 2014. Davidson State Bank have five agreements which means more amount is offered through loan by them. While, because of short of finances, Mr. Burton has opened the account in City Bank and Trust in the year 2016 and they defaulted both banks in 2017 which means that not much transaction has happened between Mr. Burton and City Bank and Trusts during this short period. Therefore, Davidson State Bank should prevail.