Abbie Lee Miller, a world famous dance teacher, bought Anna Pavlova’s tutu to hang in her dance studio. To do so, she obtained a $100,000 loan from Candy Apple Bank, secured by the tutu, which was timely perfected by the filing of a financing statement. Two months later, knowing that she was suffering financially, Abbie Lee hosted a sale at her studio, where she sold various antiques she had in her studio, including the tutu. Because she is big on honesty, she told the buyer about the security interest in the tutu, but the buyer bought it anyway. Abbie then defaulted on the loan. Can Candy Apple Bank recover the tutu?
1. No. The buyer bought the tutu in the ordinary course of business, and thus took it free and clear of the security interest.
2. No. The “garage sale exception” allows the buyer to take the tutu free and clear of the security interest.
3. Yes. Candy Apple Bank will have priority over the buyer; whether buyer knew about the prior security interest is irrelevant here.
4. Yes. Candy Apple Bank will have priority over the buyer, but only because the buyer knew about the prior security interest in the tutu.