Big Bank in Columbia made a $50,000 operating loan to the Hitching Post, L.P. a restaurant located in Hartsburg, Missouri. The restaurant equipment secured the loan. When Big Bank filed its financing statement, the clerk who prepared the financing statement found an address for the Hitching Post, by looking in the bank’s existing records. What the clerk did not realize was that the Hitching Post closed after the flood of 1993, so the address he found in the bank’s records was no longer correct. In fact, the flood had washed that building completely away.

The folks operating the Hitching Post were not particularly aggressive or well informed when it came to business matters. (Consider that it took them nearly 15 years just to find a new location.) In a few months, they had exhausted the operating loan and found themselves in desperate need of cash to pay suppliers and to meet payroll. Out of desperation, they went to Little Bank in Ashland to borrow $20,000, offering the restaurant equipment as collateral.

The loan officer at Little Bank checked the UCC filings and found the financing statement filed by Big Bank, but she immediately noticed that the address in the record was the “old” address. Loan Officer therefore concluded that the filed financing statement covered a different borrower. Little Bank then made the $20,000 loan and filed its own financing statement with the Secretary of State’s Office.

Unfortunately, no amount of money could make up for the lack of business ability and soon the Hitching Post closed its doors forever, but not before holding an auction. A man named Billy Bob Bullard bought the restaurant equipment for $30,000 (its actual market value).

Which statement is correct?

(a) Billy gets to keep the equipment because he bought it in good faith with no knowledge of any security interest.

(b) Either of the banks can repossess the equipment from Billy, because each had a properly perfected security interest. As between the two banks, Big Bank is entitled to priority over Little Bank.

(c) Either of the banks can repossess the equipment from Billy, because each had a properly perfected security interest. As between the two banks, Little Bank is entitled to priority over Big Bank.

(d) Little Bank can repossess the equipment from Billy because it had a properly perfected security interest; Little Bank has priority over Big Bank, which failed to perfect its security interest properly due to the mistake in the debtor's address.