On July 1, Aladdin borrowed $50,000 from Jafar to purchase a magic carpet so that he could fly into the palace and meet the incredibly beautiful Princess Jasmine. To obtain the loan, Aladdin granted Jafar a security interest in the magic carpet. Jafar filed a financing statement in the proper filling office listing the collateral as "magic carpet."
After purchasing the carpet, Aladdin realized it was faulty and would not fly as advertised. So on August 1, he sold the magic carpet to Iago for cash. Using the cash from the sale, Aladdin purchased a gold lamp he found in the market that claimed to have a genie inside.
It is now August 15 and Aladdin has failed to make a single payment to Jafar and is in default. When Jafar goes to repossess the lamp, he discovers the Sultan is in the process of trying to repossess the lamp as well; it turns out that Aladdin had also granted the Sultan a security interest in the lamp (Aladdin borrowed money from the Sultan to purchase a monkey). The Sultan filed a financing statement on August 2.
As of August 15, which statement is correct?
1. Jafar has priority over the Sultan, because the lamp is proceeds and Jafar filed a financing statement to perfect the original security interest in the magic carpet, so he has continuous perfection and priority.
2. The Sultan has priority over Jafar, because Jafar failed to perfect his security interest in the lamp within the grace period.
3. Jafar has priority over the Sultan, because the lamp is proceeds of the magic carpet and Jafar is still temporarily perfected as to the lamp.
4. The Sultan is the only party with a security interest in the lamp because the lamp is not identifiable proceeds of the magic carpet.