On May 1, 2006, using in-store financing, Doc buys a brand new Winchester rifle for “personal” use at the OK Corral Gun Shoppe, entering a 24-month payment plan with 5% financing. OK Corral Gun Shoppe has the standard practice of including a provision in the Sales Agreement retaining title to the goods purchased using store financing, for the duration of the loan. However, OK Corral Gun Shoppe fails to file an initial financing statement listing the rifle as collateral, or take any other steps to perfect their security interest in the rifle. Doc is diligent and pays off the rifle on July 1, 2007, only 14 months into the 24-month agreement.

On July 4, 2007, being down on his luck, and needing some money to go to the saloon, Doc borrows $500 from Johnny Ringo, using his valuable rifle as collateral. Upon filing an initial financing statement covering the rifle, Doc and Johnny then enter into a security agreement, giving Johnny a security interest in the rifle.

Which of the following is the best answer?

1) OK Corral Gun Shoppe has first priority in the rifle, because the rifle is a consumer good and it thus had a purchase-money security interest, which was automatically perfected

2) OK Corral Gun Shoppe has first priority in the rifle, because under the contract it retained the purchase-money security interest for the entire 24 months, regardless of when Doc pays off the rifle

3) Johnny has first priority in the rifle, because OK Corral Gun Shoppe failed to file a financing statement.

4) Johnny has first priority in the rifle because OK Corral Gun Shoppe no longer has a security interest in the rifle.