Four years ago, Farmer Fred obtained a loan to purchase chickens and feed from First Rate Bank for his egg farm. The loan is secured by a properly executed security agreement (perfected by filing) creating a security interest in the chickens purchased and the eggs produced, which contains a clause which states that Farmer Fred may not “make any sale of the livestock without First Rate Bank’s prior consent.” However, to maintain adequate egg production, Farmer Fred sells unproductive chickens and buys new chickens as needed at the monthly livestock auction. First Rate Bank is aware of this practice, and has never expressed any problems with the number of chickens Farmer Fred has on hand or the amount of egg production.

Last quarter, Farmer Fred’s egg farm took a serious hit due to the weather and Farmer Fred has since defaulted on his agreement with First Rate Bank, selling all of his chickens to Penny Purchaser. First Rate Bank now seeks to reclaim the chickens Farmer Fred sold to Penny per its “no sale without our consent” clause. Can First Rate Bank repossess the chickens from Penny Purchaser?

1) Yes, because Penny took the chickens subject to First Rate Bank's perfected security interest.

2) No, because First Rate Bank has not perfected its security interest.

3) No, because First Rate Bank impliedly authorized the sale of the chickens free of its security interest.

4) No, First Rate Bank expressly authorized the sale of the chickens free of its security interest.