Consumers Buying and Selling Goods Subject to Security Interest - Explained
When Goods subject to a Security Interest are Sold to Consumers
Written by Jason Gordon
Updated at April 6th, 2023
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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
Discussion Question
What do you think about this extension of protections to purchasers who do not qualify as buyers in the ordinary course? Is this protection adequate or is it too narrow in its protections? Why?
Practice Question
Venus has a lawnmower that she purchased from ABC Corp. Venus financed the purchase through ABC Corp. She later offers to sell her lawn mower to Wyatt. Wyatt agrees to purchase the mower. What information do we need to know to determine whether Wyatt takes the lawn mower subject to ABCs security interest?
Related Topics
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Collateral
- Pledge as Collateral
- Collateralize
- Cross Collateralization
- After-Acquired Collateral
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Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
- Limited Recourse Debt
-
Uniform Commercial Code - Article 9
- What are the common types of security interest in real property (land)?
- What is a mortgage?
- How does a security interest protect the mortgage holder?
- Lis Pendens
- Deficiency Judgment
- What is a Deed of Trust or Security Deed?
- What is a Land Sale Contract?
- What is a security interest in personal property?
- How does one establish a security interest in personal property?
- What is Perfection of a security interest?
- What are the methods of perfecting a security interest in personal property?
- UCC-1 Statement
- How does one establish a security interest in real property (land)?
- Register of Deeds
- What is Automatic Perfection of a security interest?
- What is a Purchase Money Security Interest (PMSI) in consumer goods?
- What is a Purchase Money Grace Period for a PMSI in non-consumer goods?
- How does one continue perfection of a PMSI in non-consumer goods?
- What is Temporary Automatic Perfection in Proceeds from the sale of goods?
- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Defeasance
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
- Construction Lien
- Cloud on Title
- What is the priority of a buyer of collateral that is subject to a security interest?
- 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?
- What are the general Priority Rules for Conflicting security interests?
- Subordination Agreement
- Who has Priority in Proceeds from the sale of collateral?
- What is a secured party's priority in future advances to a debtor?
- What is the priority of a PMSI in goods (other than inventory and livestock)?
- What is the priority of a PMSI in inventory?
- What is the priority of conflicting PMSIs?
- What is the priority of security interests in fixtures?
- What is the scope of fixture priority rules?