Coach Gary Finkel recently received the much anticipated approval for funds to expand the Missouri Athletic Complex weightroom on the campus of the University of Missouri-Columbia. With a never-before-seen passion for the success of his special teams units, he decided to purchase all kicking-related machines, with the exception of a wrist-roller for his long-snappers. Due to Coach Finkel’s wish to one day open a special teams gym of his own after retiring from coaching, he asked the Mizzou Athletic Department (MAD) if he could personally purchase the equipment through a loan from MAD, then place the machines in the school’s weightroom. Coach Finkel knew he would get a better deal if he purchased the equipment for the team’s use. The athletic director, Mike Y’allden agreed to the proposal, and cut Coach Finkel a check from the MAD for the allotted amount. MAD took a security interest in the equipment, and filed a financing statement in the Boone County Recorder of Deeds Office.

However, instead of purchasing the equipment in full, Coach Finkel purchased the machines using a line of credit from the equipment manufacturer, Hammer Stalwartness. The machines were used as collateral and the financing statement was filed with the Secretary of State’s Office 10 days after Coach Finkel received the equipment.

Coach Finkel set aside enough money to cover the first few payments for both obligations, and deposited the rest in his Rockets’ Gambling account near Toledo, Ohio. He planned on paying off the remainder of both financing plans with the money he earned through fixing the games he coached, while profiting substantially from his excess winnings. This clearly explains why he went for two in the first half of Missouri’s game with Illinois.

Coach Finkel’s betting fortunes turned south quickly, as the Tigers won 6 of their next 7 as a result of using the new equipment. Coach Finkel soon defaulted on both obligations and claims were made by the MAD and Hammer Stalwartness for repossession of the equipment. Which statement is correct?

1) MAD has first priority in the equipment because it was first to enter into a security agreement with Coach Gary Finkel.

2) MAD has first priority in the equipment because it was first to perfect by taking possession.

3) Hammer Stalwartness has first priority in the equipment because it is entitled to purchase money priority over MAD's conflicting interest.

4) Hammer Stalwartness has first priority in the equipment because employers cannot legally enter into valid security agreements with their employees.