When you see a dispute between a buyer and a Secured Party, you can phrase the priority question as:
Did the buyer take the collateral FREE OF a security interest or SUBJECT TO a security interest?
The "Garage Sale Exception" is a _____ to _____ exception.
Consumer to consumer exception!
Re. Buyer v. Unperfected Security Interest - as a general rule: Unless a secured party authorizes the sale free and clear of the security interest, the buyer takes _____ _____ a security interest.
subject to!
Rule - The buyer will take free of the future advance if...
1.) the secured party had knowledge of the buyer's purchase when it made the advance; OR
2.) the future advance is made (45) days or more after the purchase.
Remember, sales of chattel paper and promissory notes are treated as secured transactions: attachment (assumed) and perfection...
often by possession with this type of collateral.
*priority rule oversimplification: purchasers/secured parties who take possession of the collateral without knowledge of the competing security interest will often have priority over competing secured parties.
Transferees of Money or Funds: transferee of money or funds from a deposit account (that person who received money subject to a security interest) takes free of security interests UNLESS...
the transferee acts in collusion with the debtor to violate the rights of secured party.
Regarding a Buyer v. a Perfected Security Interest: the general rule is: UNLESS the secured party authorizes the sale free and clear of its security interest, a buyer takes...
SUBJECT TO a perfected security interest.
*There is an EXCEPTION to this.
A buyer of consumer goods will take ______ of a security interest, even if...
1.) the buyer buys consumer goods for VALUE;
2.) for their own personal, family or household use;
3.) from a consumer seller and;
4.) WITHOUT knowledge of the security interest, and
5.) UNLESS the secured party has filed a financing statement covering the goods before the purchase occurred.
Unless a secured party authorizes the sale free and clear of the security interest, the buyer takes subject to a security interest. What is the exception to this rule?
A buyer will take free of an unperfected security interest if the buyer:
1.) gives value;
2.) receives delivery of the collateral; and
3.) without knowledge of the preexisting interest.
As a general rule, the buyer of collateral subject to a perfected security interest takes the collateral...
subject to the security interest, unless the secured party authorizes the sale free and clear of the security interest.
Security Interests v. Buyers' and Sellers' Article 2 Security Interests: If a buyer or seller has a security interest arising under Article 2 of the UCC, that interest has priority over an Article 9 security interest, as long as the buyer or seller retains...
possession of the goods!
Regarding a Buyer v. a Perfected Security Interest: the general rule is: UNLESS the secured party authorizes the sale free and clear of its security interest, a buyer takes SUBJECT to a perfected security interest. The exception to this is...
Buyer in the ordinary course of business. (BIOCB)
Tip: PMSI's in consumer goods are ________ perfected!
Perfected!
*this rule allows a purchaser of consumer goods to take free of a security interest if the secured party relies on automatic perfection.
*secured parties can AVOID the "Garage Sale Exception" by filing a financing statement covering the goods.
Tip: The buyer in the ordinary course of business and consumer-to-consumer exceptions can also apply in disputes involving...
UNperfected security interests.
In order for a buyer of collateral to take the collateral free of an unperfected security interest for which the secured party has not authorized the sale free and clear of the security interest, what (3) things are a requirement?
1.) the buyer must give the value of the collateral;
2.) the buyer purchase the collateral without knowledge of the existing security interest; and
3.) the buyer must receive delivery of the collateral.
A (BIOCB) takes FREE of a security interest created by the buyer's seller even if that security interest is perfected and even if the buyer KNOWS of the existence of the security interest if... (4) things...
1.) the buyer buys goods from a merchant;
2.) in the ordinary course of the merchants business;
3.) the buyer acts in good faith and WITHOUT knowledge that the sale violates the rights of others in the same goods;
4.) the seller is engaged in the business of selling goods of this kind, and the seller is NOT a pawnbroker.
If the garage sale exception (or another exception) does not apply, then apply the general rule: a buyer takes _____ _____ a security interest.
subject to!
In order to avoid the "garage sale" exception, the holder of an automatically perfected security interest can take what action?
Properly file a financing statement covering the goods before they sold.
1.) the buyer buys goods from a merchant;
2.) in the ordinary course of the merchants business;
3.) the buyer acts in good faith and WITHOUT knowledge that the sale violates the rights of others in the same goods;
4.) the seller is engaged in the business of selling goods of this kind, and the seller is NOT a pawnbroker.
What are these?
The EXCEPTION to the "subject to" general rule: The BIOCB takes FREE of a security interest created by the buyer's seller even if that security interest is perfected and even if the buyer knows of the existence of the security interest IF (4) elements are met.
The "Garage Sale Exception" is a _____ to _____ exception.
consumer to consumer exception!