On July 1, Dorothy begs her good friend Tin Man to lend her $1,000 to get her ruby slippers out of the repair shop. Dorothy just came off the talk-show circuit where she was (unsuccessfully) promoting her tell-all book entitled, “Life behind the Curtain.” The slippers were in bad shape because wherever she appeared, the audience always insisted that she click her heels together while they chanted, “there’s no place like home…there’s no place like home.” Tin Man grudgingly lent the money to Dorothy, but took possession of the shoes to secure his interest in the loan. The loan was to be repaid in 30 days, but 60 days went by and Tin Man never heard from Dorothy. By September 1, he decided to sell the shoes so he could get his money back. He sends Dorothy a letter, proposing to keep the shoes as full satisfaction of her obligation, but he gets no response from her so on October 1, he sells the shoes on eBay for $2,000. Tin Man did not check the UCC records, so he was unaware that on August 1, Dorothy had given the Bank of Oz a security interest in the ruby slippers as collateral for a loan. The current outstanding balance on the loan is $1,000, and the Bank had properly perfected its interest by taking possession of the shoes.

When Tin Man sells the shoes, where does that leave Dorothy and the Bank of Oz? Assume that the sale of the shoes was otherwise commercially reasonable.

(a) Dorothy is entitled to the $1,000 surplus, and the person who bought the shoes on eBay took them subject to the Bank’s interest, so Bank still have a perfected interest in the shoes.

(b) Dorothy is entitled to the $1,000 surplus, and the Bank is entitled to recover damages from Tin Man.

(c) Dorothy is entitled to the $1,000 surplus, and the Bank of Oz is just out of luck because its interest was terminated when Tin Man accepted the collateral as full payment of Dorothy’s obligation.

(d) The Bank and Dorothy are both entitled to recover damages from the Tin Man, and Dorothy may recover statutory damages because she did not consent to Tin Man’s proposal and besides, shoes are consumer goods.