During a particularly brutal winter here in Missouri, Jeb bought a Ski-doo snowmobile from a local retailer, Earl’s Power Sports (EPS).  Jeb had saved $500 for a down-payment and had to finance the rest of the snowmobile with monthly payments due on the 15th of every month.  EPS had Jeb sign a standard form security agreement under which EPS retained a security interest in the snowmobile to secure the unpaid purchase price. 

Two months ago, Jeb’s friend Tommy was moving up to North Dakota and happened to be selling a 65” LED 3D TV, and a reasonably new front-loading washer and dryer set. Jeb decided that he didn’t really need a snowmobile and he really needed a new TV and washer and dryer, so Jeb asked Tommy if he would be willing to make a trade. Tommy thought a snowmobile might come in handy so he agreed to make the deal with Jeb; he’d give Jeb the TV and washer/dryer set in exchange for the snowmobile.  Jeb and Tommy made the trade on September 20; Tommy moved out of the state with the snowmobile, and Jeb decided to quit making his payments to EPS.

Meanwhile, Jeb also bought a new surround sound stereo system to improve upon his home entertainment experience.  He financed the surround sound system by granting the seller, Morgan, a security interest in the TV.  Morgan filed a UCC-1 financing statement covering the TV on October 1.

EPS calls you on October 2, frantic for advice as to whether it lost its first priority claim to the TV once Morgan filed the UCC-1 on October 1. Which statement is correct?

1. Yes. Because Morgan was the first-to-file-or-perfect with respect to the TV, EPS cannot obtain priority over Morgan.

2. Yes, because EPS never complied with the certificate of title statute, EPS didn't have a perfected security interest in the snowmobile, so its security interests in the TV and washer and dryer are likewise unperfected, so EPS cannot obtain priority over Morgan.

3. No, EPS will retain priority over Morgan as long as EPS files a UCC-1 covering the TV and washer and dryer within the next 8 days.

4. No, EPS will retain priority over Morgan even if EPS does not file a UCC-1 covering the TV and washer and dryer.