On January 1, 2007, Les Bourgeois (a winery) and First National Bank enter into a Security Agreement. In the agreement, First National agreed to loan Les Bourgeois $1,000,000; in return, Les Bourgeois granted First National a security interest in all of its present and after-acquired inventory. That same day, First National perfected the security interest by filing a financing statement.

Later that year, Les Bourgeois decides to renovate its winery facilities. Unable to store all of the wine during the renovation, Les Bourgeois stores 50% of their inventory at Underground Storage Warehouse. On April 1, the owner/manager/bailee of Underground Storage gave Les Bourgeois a negotiable document identifying the type and quantity of wine stored. On May 1, 2007, Les Bourgeois sold and delivered the negotiable document to South-Side Liquor for a price of $600,000.

Does First National have a perfected security interest in the wine stored at Underground Storage, the rights of which are embodied in the negotiable document now in the possession of South-Side Liquor?

A) No, the negotiated document was “duly negotiated” to South-Side Liquor, therefore South-Side Liquor took its rights in the wine free and clear of First National’s security interest.

B) Yes, First National’s perfected security interest in the wine is enforceable against South-Side Liquor, because First National perfected before the negotiable document was issued.

C) No; however, First National has a security interest in the identifiable proceeds from the sale of the negotiable document.

D) Both A and C