#35 - Sellers Against Secured Creditors Flashcards
Power to Confer Property Rights
Nemo dat: owner can transfer only what he owns 2-403(1)
Exceptions from nemo dat:
1) When goods have been delivered under a transaction of purchase, the purchaser has power to transfer a good title to a good faith purchaser for value (“voidable title”). 2-403(1)
– A secured lender is a good faith purchaser for value, even when claiming collateral as after acquired. 1-204(2)
– Emma agrees to sell computer to Odinet but Odinet promises he will pay after a week. Then Odinet sells to BFP. Emma loses computer to the BFP. Emma won’t get PC back. Emma holds that L under this exception
2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives merchant power to transfer all rights of the entruster to a buyer in the ordinary course of business. 2-403(2)
Sellers’ Tools Against Inventory Lenders
1) PMSI: follow formalities of 9-324(b). Seller could take PMSI and obtain prio that way. But the problem is that is prohibited by some inventory lenders
2) Retention of Title: trap for unwary. 2-401(1). That just creates a sec int for trying to retain title. Art 9 recharacterizes it as a completed sale with sec int. So that doesn’t really work.
3) Express or implied agreement: subordination agreement, for example. Good if you can get one but maybe not economical based on how much you would pay the other secured creditor/inventory lender.
4) Consignment: Depends on 9-109(a)(2). In re Petit Oil. Depends how that statute is applied. Usually these are treated as sales subject to security interests.
5) Right of Reclamation against Insolvent Debtor:
–> UCC: must be claimed in 10 days of receipt. 2-702(2); subordinate to inventory lender, 2-702(3). Problem with this is the UCC says it has to be claimed within 10 days saying you want it back and it’s explicitly worse than inventory lender’s rights which is what you’re trying to avoid.
This all sucks for sellers. Basically just try to get paid in full as a seller rather than selling on credit.
Common Traps
From 35.1(a) = just because a BFP purchased something doesn’t mean they take free and clear. If something is stolen and then sold to a fence who then sells to a BFP, that BFP loses to the original owner because the rule in 2-403(1) requires “when goods have been delivered UNDER A TRANSACTION OF PURCHASE” which did not happen here.
From 35.1(b) = Entrustees only have the ability to pass on the rights of their entrusters. So if you have OG Owner > Thief > Fence > BFP > Merchant (Entrusted) > BFP2 > Donee the winner is still OG Owner because entrustment only transfers the rights of the entrustee and the BFP as entrustee had voidable title since BFP got it via Thief.
From 35.1(c) = Owner > BFP > Merchant (Entrusted) > BFP2. This is entrustment but BFP2 gets all the rights of BFP which took fairly from Owner. So BFP2 wins. Merchant’s inventory Lender does not count as a buyer in the ordinary course for 2-403(2) purposes.
From 35.1(d) = Shelter rule is a doctrine where a grantee who has received an interest in property from a BFP will also be protected as a BFP even if the grantee would not legally qualify for this status independently. Example: Owner > BFP > Merchant (Entrusted) > BFP2 > Bank (via sec int). Here, Bank is the shelter rule beneficiary. The Bank is not a buyer in the ordinary course, just a secured creditor, but still steps into hte shoes of BFP2.
