Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Law, Transactions, & Risk Management
  • Commercial Law: Contract, Payments, Security Interests, & Bankruptcy

Protections of a Buyer in the Ordinary Course of Business - Explained

What is a Buyer in the Ordinary Course of Business?

Written by Jason Gordon

Updated at September 26th, 2021

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

Protections of a Buyer in the Ordinary Course of BusinessWhat is required to be a buyer in the ordinary course of business?Discussion QuestionPractice QuestionAcademic Research

Protections of a Buyer in the Ordinary Course of Business

A buyer in the ordinary course of business takes collateral free of any security interests created by the seller. 9-320(a). This is true whether the security interest is perfected or no. As such, the buyers knowledge that a security interest exists is irrelevant.

  • Note: This rule does not include farm products sold by individuals engaged in farming. 1324(e)(1) & (2) limits this harsh rule for buyers of farm products. The only way a secured lender with an interest in farm products can protect herself is through a state-operated central filing system or by giving any potential buyers pre-notification of the security interest. The debtor can face a fine for failure to notify purchasers of the products.

Next Article: Statutory Protection for Purchasers for Buyer in Ordinary Course Back to: SECURED TRANSACTIONS

What is required to be a buyer in the ordinary course of business?

A buyer in the ordinary course of business must meet the following characteristics:

Good Faith - The purchaser of the collateral must buy it in good faith and without the intent to defraud or deceive;

Not Aware of Violation of Rights - The buyer cannot know that the sale of the collateral violates the security interest of a third party. She can know about the security interest but cannot be aware that the sale of the collateral is not authorized; and

Ordinary Course of Business - The buyer must purchase the goods under normal purchasing conditions from a seller of goods of that kind. Basically, the collateral purchased must be inventory that is regularly sold by the seller. 1-201(9)

Example: Buying a used piece of operational equipment from a business that does not regularly sell that type of equipment would not qualify.

The buyer-in-ordinary course exception only applies to security interests that were validly entered into by the seller of the goods of this kind. It does not protect anyone who later purchases the collateral from the BOCB. This harsh result is addressed via UCC 9-320(b) and the Shelter Principle.

Note: UCC 1-201(9) intentionally excludes pawnbrokers from buyers in the ordinary course. It also excludes bulk transfers of goods or the transfer of goods as a security interest or in satisfaction of an existing debt.

Related Topics

  • 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?

Discussion Question

What do you think about the buyer in the ordinary course exception? What objective is served by this rule? Is the rule too broad or overly narrow in its protections of purchasers? Why?

Practice Question

Rosa purchases and finances her inventory from Sam. Sam takes a security in Rosas inventory. Tom purchases a good from Rosa. Does Tom take the goods subject to Sam's security interest? What facts do we need to know to answer this question?

Academic Research


protections of a buyer ordinary course business

Was this article helpful?

Yes
No

Related Articles

  • Discharge of Warranties of Negotiable Instrument - Explained
  • Mailbox Rule for Contracts - Explained
  • Types of Bankruptcy - Explained
  • Unsecured Loan - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand