Buyers in the Ordinary Course of Business

Question 1

Generally, what is a buyer in the ordinary course of business protected from?

Answer 1

Buyers in the ordinary course of business are protected even though their interest in the property is created AFTER the attachment or perfection of a security interest.

Buyers in the ordinary course of business take the collateral FREE of the SECURITY INTEREST created by the seller.

Question 2

What is a buyer in the ordinary course of business?

Answer 2

A buyer in the ordinary course of business is a person who:

1. In good faith and without knowledge that the sale to him is in violation of the security interest to the third party; and
2. Buys in the ordinary course from a person in the business of selling goods of that kind (merchant)

Question 3

What is the shelter rule pertaining to security interest?

Answer 3

The protected buyer may sell the purchased collateral to a third-party free of the secured party’s security interest.