Bernard the Fire Dragon walks into Wal-Mart. Bernard wants to buy a new HDTV for $1,000.00. Unfortunately, all Bernard's cash is tied up in the stock market, so he buys it on terms of "$1.00 a day for 1,100 days!", assuming his stocks will turn around soon and he'll have more cash on hand. Bernard signs a contract with Wal-Mart in which he agrees to pay $1 a day for 1,100 days; under the contract, Wal-Mart retains title to the TV until Bernard finishes making all payments due.
Wal-Mart typically doesn't file a UCC-1 for such small transactions. However, given Bernard's dubious nature, they go ahead and file one, but while it accurately described the TV, it mistakenly identified the debtors as "Vernard."
Three days after Bernard buys the TV, Barry the Imp is over watching Bernard's new flat screen, and offers to buy it off him for $800. Bernard accepts, sure that he's identified a great stock in which he can turn that $800 into a huge gain. Barry pays the $800, takes possession of the TV, and puts it in his living room. Barry knows nothing of Bernard's agreement with Wal-Mart.
Bernard's stocks don't turn around, and as his "penny-stock" strategy collapses, he is forced to file for bankruptcy less than a week later. Which of the following statements is correct?
1. Because Wal-Mart filed a UCC-1, Barry had constructive notice of Wal-Mart's prior interest, giving Wal-Mart's priority over both Barry and the bankruptcy trustee.
2. Wal-Mart's UCC-1 contained a "seriously misleading error," but this was irrelevant because Wal-Mart's security interest was automatically perfected, giving Wal-Mart priority over both Barry and the bankruptcy trustee.
3. Barry can keep the TV without regard to Wal-Mart's claimed security interest, which is not effective against him.
4. The bankruptcy trustee has the best right to the TV, because Bernard didn't actually own the TV until he finished paying for it (which he didn't), and thus he couldn't transfer good title to Barry.