Mr. Kennedy desired to purchase a new plasma TV from Lex-tronics, a local electronics store run by Lex Luger. Lex and Mr. Kennedy are friends and Mr. Kennedy knew that Key Bank had a properly-perfected security interest in all of Lex’s inventory. A week ago, Mr. Kennedy purchased a Panasonic 42” 1080p flat-panel plasma TV (after obtaining a secured loan from Commerce Bank for the purchase of that exact TV), which he planned to place in the living room of his house. Commerce Bank filed a financing statement covering the TV two weeks later. Mr. Kennedy purchased the TV on the same day he received the loan.

On the way home, Mr. Kennedy learned his child needed an expensive operation and the family needed the cash today. So he went back to Lextronics. On the way in, a passer-by, Randy, offered to purchase the TV for $1000 cash. Instead of dealing with Lex’s return policy, Mr. Kennedy accepted the cash and went home. Randy took the TV home to use in the new “man cave” he built at his house. Which statement is correct?

A) Randy took the TV subject to the perfected security interest of Key Bank because Mr. Kennedy did not qualify as a buyer in the ordinary course of business (as he had knowledge of Key Bank's security interest in Lex-tronics’ inventory), and thus Mr. Kennedy took subject to that security interest under the derivative title rule.

B) Randy took the TV subject to Commerce Bank's automatically perfected purchase-money security interest in the TV, which survived Mr. Kennedy’s sale to Randy.

C) Randy took the TV free and clear of the security interests of both Key Bank (as Mr. Kennedy was a buyer in the ordinary course) and Commerce Bank (under the garage sale rule).

D) Randy took the TV subject to Commerce Bank's purchase money security interest in the TV because Commerce Bank eventually filed a financing statement covering the TV, which prevented Randy from asserting the benefit of the "garage sale" rule.