On May 1, 2007, Jane Smith, sole proprietor of Dogs-R-Us, applied for a small business loan from Commerce Bank. That same day, Commerce Bank filed an initial financing statement. After conducting a UCC search, Commerce Bank approved Smith for a $150,000 loan. On May 5, 2007, Smith executed a Security Agreement that gave Commerce Bank a SI in “all goods, equipment and inventory, including after-acquired.”

On November 29, 2010, Smith applied for a loan from Bank of America. On November 30, 2010, Bank of America filed an initial financing statement, and Smith executed a Security Agreement that gave Bank of America a SI in “all goods, equipment, and inventory, including after-acquired.”

On May 5, 2012, Commerce Bank filed a continuation statement.

In June 2012, Smith defaulted on its loan to Bank of America. Both Commerce Bank and Bank of America argue that they have first priority against the collateral. Which statement is correct?

A. Bank of America has first priority, and Commerce Bank is an unsecured creditor.

B. Commerce Bank has first priority, and Bank of America is an unsecured creditor.

C. Both parties have valid security interests, but Bank of America has first priority.

D. Both parties have valid security interests, but Commerce Bank has first priority.