Debbie Debtor goes to Diamond World to purchase new jewelry for herself.  Diamond World sells a matching set of jewelry (earrings, bracelet, and necklace) to Debbie on credit and takes a valid security interest in all of the pieces in the set in order the secure the set’s purchase price. Diamond World did not file a financing statement covering the jewelry. 

When Debbie gets home, she realizes she doesn’t particularly like the bracelet and sells it to her neighbor (who wants it for her personal collection). Her neighbor did not know that Diamond World had a security interest in the bracelet.

Debbie gets into a bit of financial trouble and takes out a loan from Local Bank, using the remaining pieces of the jewelry set for collateral (i.e., the earrings and necklace).  Local Bank files a financing statement covering the jewelry. Debbie eventually defaults on her loan with Diamond World.  Diamond World comes searching for the jewelry set and wants to repossess. Which of the following statements accurately describes the collateral that Diamond World can repossess?

1. The bracelet sold to the neighbor, but not the earrings and necklace used as collateral for the loan from Local Bank

2. Neither the bracelet sold to the neighbor, nor the earrings and necklace  used as collateral for the loan from Local Bank

3. The earrings and necklace used as collateral for the loan from Local Bank, but not the bracelet sold to the neighbor.

4. Both the bracelet sold to the neighbor and the earrings and necklace used as collateral for the loan from Local Bank