While in art school, Vinny borrowed money from Hillside Bank to purchase a new washing machine. The bank took a valid security interest in the washing machine. Vinny, after becoming an overnight sensation in the art world, decided to join a nudist colony and no longer had a need for the washing machine. He stopped making payments to Hillside and went into default. Vinny traded the washing machine to an art shop owner in exchange for expensive paints and a canvas. The washing machine was later destroyed in a fire.
Shortly thereafter, Vinny completed a masterpiece painting. This weekend it will be up for auction at the Homecoming Gala. A representative from Hillside Bank is planning on attending the Gala and knows about Vinny’s painting and debt.
Which statement is correct?
1. If the painting is sold, and Vinny takes the cash and donates it to Red Cross, Hillside Bank could nevertheless demand that the Red Cross turn over the money to Hillside Bank because it was proceeds subject to Hillside Bank's security interest.
2. Hillside Bank's loan officer can sneak behind the stage at the Homecoming Gala and repossess Vinny’s painting before it can be auctioned.
3. Hillside Bank does not have a security interest in anything except whatever paint is left over after Vinny's painting.
4. Because the washing machine has now been destroyed, Hillside Bank could repossess the art shop owner's dryer as a substitute for the washing machine.