Debtor borrowed $20,000 from First Bank to purchase new furniture for his home. Debtor signed a security agreement that did not authorize Debtor to dispose of the furniture without the First Bank's prior written consent. First Bank did not file a financing statement covering the furniture.
Shortly after purchasing the furniture, Debtor acquired a $10,000 gambling debt to Harrah's Casino after a woeful trip to Las Vegas. In order to pay that debt, Debtor sold the furniture for $10,000 to Purchaser, without the consent of First Bank. At this point, Debtor still has the proceeds from the sale and has not yet paid Harrah's Casino. Purchaser and Debtor were friends and Purchaser knew of First Bank's security interest. The furniture is now only worth $15,000. Which statement is correct?
1. First Bank can enforce its interest only against the proceeds of the sale of the furniture.
2. First Bank can enforce its interest only through repossession and sale of the furniture from Purchaser.
3. First Bank can enforce its interest both by repossession and sale of the furniture from Purchaser and through repossession of the proceeds from Debtor.
4. First Bank no longer has any security interest, as Purchaser took the furniture free of First Bank's security interest.