What statutory provision protects individuals purchasing goods from a buyer in the ordinary course?

The buyer-in-the-ordinary course protection does not apply to subsequent purchases from a buyer in the ordinary course because the seller is not a seller of goods of the kind. So, if a BYOC subsequently sells the collateral purchased, the purchaser will take the goods subject to the original secured partys security interest. This is a harsh result for the unsuspecting purchaser. UCC 9-320(b) may remedy this harsh result by offering protections to the buyer if the security interest is not perfected. Under 9-320(b) the buyer takes the collateral free of the security interest under the following conditions:

Consumer Goods - The goods are consumer goods in the hands of the seller;

Note: The buyer in the ordinary course cannot be a business.

No Knowledge of Security Interest - The buyer buys without knowledge of the security interest;

Provide Value for Goods - The buyer buys the collateral for value (generally cash);

Note: The recipient of a gift is not protected.

Personal Use - The buyer buys the collateral for his own personal, family, or household purposes; and

No Financing Statement - The secured party has not filed a financing statement covering the goods prior to the purchase.

This is a very limited protection when the secured party does not perfect or relies on automatic perfection of a security interest in the sale of consumer goods. Further, the buyer and in the ordinary course and the subsequent buyer must be consumers.

Next Article: The Shelter Principle and Buyers of Collateral Back to: SECURED TRANSACTIONS

Related Topics

• What is required to be a buyer in the ordinary course of business?
• How does 9-320(b) protect consumers who purchase goods from other consumers?
• What is the Shelter Principle?