You receive a voicemail in the middle of the night from Mr. Fisher at STL Bank:
I have a problem and I think you can help me. One of our borrowers, Mike Jones, granted us a security interest in all of his company's present and after-acquired inventory, chattel paper, and accounts. Mike's company, Only One Yard Away (OOYA), distributes sporting goods to teams, large sport organizations, and individual retailers. I perfected our interest by filing a financing statement back in October 2009.
In March 2012, OOYA became an official Rawlings Inc. distributer, and all of their Rawlings inventory is now financed through Baseball Gloves Loan Co. (BGLC). BGLC handles all of Rawlings loans and financing agreements. BGLC properly filed a financing statement covering all of OOYA's Rawlings inventory, and then sent us a letter indicating their agreement to finance all of OOYA's Rawlings inventory.
This afternoon, I discovered that OOYA is in default to us and BGLC. I already know that we have priority in the store's inventory besides the Rawlings products. My question is about a large sale of Rawlings equipment OOYA made last month. The sale was to Lil' Cards Baseball Store and included several dozen baseball gloves, bats, hats, and other equipment. Oddly, the sale was made on credit and the owner of Lil' Cards signed an installment contract under which OOYA retained title to the goods until Lil' Cards paid all the installments. I just got off the phone with Mike Jones and he says he still has a copy of the contract he made with Lil' Cards. Please call me back as soon as you can. I need to know whether BGLC has priority regarding the payments due on this contract, or we do.
Which of the following responses accurately answers Mr. Fisher's question?
1. BGLC has priority because it is a holds a purchase-money security interest in the contract.
2. BGLC has priority the contract is proceeds of inventory in which BGLC had a purchase money security interest with priority over STL Bank.
3. STL Bank has priority because STL Bank has a prior perfected security interest in the contract and BGLC did not take possession or control of the contract.
4. STL Bank has priority because BGLC acted with knowledge that its purchase of the contract violated STL Bank's rights.