David Yost purchased a sleek “hidden” camera from Billy Belichik’s Electronic Essentials Inc. (Billy Belichik's) and signed a contract agreeing to pay Billy Belichik’s in 18 monthly installments. Under the contract, Billy Belichik's retained title to the camera until all installments were paid. When Yost signed the contract, he noted that he would use the camera for “personal, family, or household use.” However, Yost, being the brilliant offensive coordinator for the University of Missouri football team, attached the hidden camera to a graduate assistant during every Tiger football game so Yost could film the opposing team and grasp how to effectively run an offense.
In the middle of the football season, Yost decided that being a Division I college football offensive coordinator just wasn’t his cup o’ tea, so he sold the camera on eBay for a hefty price to Buyer. Buyer did not know of Billy Belichik's security interest and planned to use the camera on Buyer's upcoming vacation. Yost moved to Hawaii to become a surf instructor where it’s socially acceptable for grown men to have long blonde hair.
Billy Belichik’s claims to have a security interest in the camera and claims it may repossess the camera from Buyer. Which answer is correct?
1. Billy Belichik’s PMSI in the camera was automatically perfected and Billy Belichik’s may repossess the camera from Buyer.
2. Because Billy Belichik’s failed to file a UCC-1 financing statement its interest was not perfected and as a result, Buyer took the camera free and clear of Billy Belichik's security interest.
3. Billy Belichik's PMSI in the camera was automatically perfected, but Buyer still took the camera free of Belichik’s security interest because Billy Belichik's did not file a financing statement covering the camera.
4. Buyer took the camera subject to Billy Belichik’s security interest because a subsequent buyer’s lack of knowledge of a security interest is immaterial.