Priority of Consumers Purchasing from Consumers
What if a Consumer Purchases Goods that are Subject to a Security Interst?
Written by J. Mance Gordon
Updated at April 19th, 2024
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Protections for Consumers Buying Collateral from Other Consumers
Buyer in ordinary course protection does not apply to purchases by consumers from consumers (not sellers of goods of the kind). 1-201(9). As such, 9-315(a)(1) states that the security interest continues and 9-320(a) says the buyer takes subject to the security interest.
9-320(b) may offer protection to the buyer if the security interest is not perfected or automatically perfected under 9-309(a). Under 9-320(b) the buyer takes free of the perfected security interest under the following conditions:
- The goods are consumer goods in the hands of the seller;
- The buyer buys without knowledge of the security interest;
- The buyer buys for value;
- The buyer buys for his own personal, family, or household purposes; and
- 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 the 9-309(a) security interest. Since most sellers of consumer goods depend on 9-309 automatic perfection of a security interest, this can be an effective protection.