Protection of a Buyer of Goods

Question 1

“Buyer in the ordinary course of business” (BIOCOB)

Answer 1

A “buyer in the ordinary course of business” (BIOCOB) takes free of a security interest created by its seller even if the security interest was perfected.

1. Buys collateral/goods in good faith and in the ordinary course of business
2. from a merchant in the business of selling goods of that kind
3. without knowledge that the sale violates the rights of a third-party

UCC § 1-201(b)(9)

Question 2

Shelter principle

Answer 2

If a buyer acquires property free of a security interest, then any subsequent transfer is also free of the security interest.

• Once the buyer acquires the [seller’s collateral] free of the secured party’s security interest, any subsequent transfer of the system by the buyer to someone else is also free of the secured party’s security interest.
• Accordingly, when the [transferee] acquired the seller’s collateral from the buyer, it was free of the secured party’s security interest

UCC § 2-403(1)

Question 3

Consumer-to-consumer exception

Answer 3

Buyer takes free of security interest even if perfected if:

1. Buyer buys goods from a person who used the goods primarily for personal, family, or household purposes,
2. without knowledge of the security interest,
3. For value,
4. Primarily for the buyer’s personal, family, or household purposes, and
5. Before the filing of a financing statement covering the goods **(except for PMSI in consumer goods)

UCC § 9-320(b)