On October 5, 2010, Lance purchased 5 triathlon bikes from Shark’s Bike Shop. He signed an installment contract under which he agreed to pay the $65,000 purchase price in monthly installments for 24 months. Having obtained his pro card in triathlon from the United States Triathlon Association, Lance planned to race on the bikes during his bid to qualify for the Ironman World Championships in Hawaii. Shark’s filed a financing statement listing the triathlon bikes as collateral. Lance faithfully made his monthly payments, paying off the $65,000 purchase price on August 15, 2012.
On October 15, 2012, Lance decided he would like to open a credit line at Carmichael’s Bank for $10,000 and use his 5 triathlon bikes as collateral. Carmichael’s Bank informed Lance it would not accept the 5 triathlon bikes as collateral because they were already covered by an existing financing statement. Lance, infuriated by the refusal, called one of his many attorneys for advice on how to handle the situation.
Given the facts above, which of the following is the best advice for Lance’s attorney to provide?
1. Once Lance had repaid the debt, Shark’s Bike Shop had an obligation to file a termination statement no later than September 15, 2012, so Lance should commence an action against Shark’s Bike Shop for damages caused by its failure to file a termination statement.
2. Carmichael’s Bank needs to send an authenticated letter to Shark’s, indicating it would like a termination statement to be filed in order to facilitate its financial dealings with Lance.
3. Shark’s Bike Shop has an obligation to file a termination statement upon Lance’s request to do so; therefore, Lance should sign and send a letter to Shark’s demanding it file a termination statement.
4. The loan from Shark’s was an automatically perfected purchase-money security interest. Therefore, instead of a termination statement, Shark’s needs to write a letter to Carmichael’s Bank indicating Lance has paid off the loan and no longer has an obligation with Shark’s.