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Comments
JOHN LUCAS*
The Article 9 Buyer?s Seller Rule
& the Justification for
Its Harsh Effects
I
All fifty states and the District of Columbia adopted RevisedArticle 9 of the Uniform Commercial Code (Code) in July
of 2001.1  However, Old Article 9 continues to govern the major-
ity of Article 9 disputes because the security agreements were
created under Old Article 9.  As a result, an examination of Old
Article 9 is not only relevant but the best place to begin in order
for one to understand its successor.
When one attempts to ascertain the meaning and purpose for
any particular section in Article 9 of the Code in isolation from
the remaining sections in Article 9, and the other Articles, espe-
cially Article 1, it is not apparent how the liberal construction
and application of any single section achieves the Code?s primary
purpose of simplifying, clarifying, and modernizing the law in or-
der to facilitate commercial transactions.2  This is especially ap-
parent when one analyzes the limitations set forth in section 9-
320(a),3 the successor statute to the old version at section 9-
* University of Oregon School of Law, J.D. 2004.  Articles Editor, Oregon Law
Review, 2003-04.
1 UNIF. COMMERCIAL CODE, Adoption of Revised Article 9 (2000), 3 U.L.A. 14-
18 (2003).
2 U.C.C. ? 1-102.
3 U.C.C. ? 9-320(a) states:
Except as otherwise provided in subsection (e), a buyer in ordinary course
of business, other than a person buying farm products from a person en-
gaged in farming operations, takes free of a security interest created by the
[289]
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290 OREGON LAW REVIEW [Vol. 83, 2004]
307(1).4  This Comment examines the meaning and effect of the
Buyers of Goods Rule, in particular the ?Buyer?s Seller? sub-ele-
ment within it, and attempts to excavate its elusive policy.
In this Comment, Part II serves as an introduction to section 9-
320(a) where I analyze its sub-elements to show the related
problems that result from its application.  Part III outlines the
policy behind section 9-320(a) using related case law and inter-
preting this section in the context of the entire Code.  Commen-
tators frequently criticize section 9-320(a)?s harsh effects because
they cannot identify a tenable policy to support it. Despite the
criticism, the section stands virtually unchanged since the Code?s
inception in September 1951.  It seems unlikely that the drafters
of such a ?mature and developed? statute would continue to
overlook such a simple and obvious effect.  From its inception,
the Code ?was put forward as the grandest achievement of all
time in the history of private statute law making.?5  Through the
analysis of the rich factual background of the case law, along with
the related law review articles on this issue, this Comment will
provide the elusive justification for section 9-320(a)?s harsh re-
sults.  Part IV examines how courts have attempted to circum-
vent the section 9-320(a) harsh results. In this part, this
Comment discusses how the authorization exception in section 9-
315(a)(1) functions in relation to 9-320(a) and how an analysis of
section 9-315(a)(1) helps one understand the limited effect sec-
tion 2-403(2) should have upon purchased goods encumbered by
a perfected security interest.  Part IV concludes with an analysis
of a creative, but incorrect, decision handed down by the Oregon
Supreme Court which bends the Code?s rules far from where
they should be.  Part V provides a brief explanation of the prior-
ity rules associated with proceeds and shows how the burden im-
buyer?s seller, even if the security interest is perfected and the buyer knows
of its existence.
The Farm Products exception reference in subsection (e) is not relevant for the pur-
poses of this Comment.
4 The old version of this rule differs slightly from ? 9-320(a) but only in form, not
substance.  It states:
A buyer in the ordinary course of business (subsection (9) of Section 1-201)
other than a person buying farm products from a person engaged in farm-
ing operations takes free of a security interest created by his seller even
though the security interest is perfected and even though the buyer knows
of its existence.
U.C.C. ? 9-307(1) (revised 2001).
5 JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE: SE-
CURED TRANSACTIONS ? 7 (5th ed. 2000).
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The Article 9 Buyer?s Seller Rule 291
posed on innocent buyers in the ordinary course of business can
be shifted so that the priority battle is only between secured par-
ties, both of which are better suited to bear the loss than the
innocent purchaser.
II
CONSTRUCTION AND APPLICATION
OF SECTION 9-320(A)
A. Introduction to the Problem
Section 9-320(a) states the necessary conditions a buyer in the
ordinary course must satisfy in order for her to purchase goods
and take free from any perfected security interest in those goods.
Since its inception, courts and legal scholars have criticized this
rule because it fails to extend the protections normally associated
with buyers in the ordinary course of business to all similarly sit-
uated buyers in the ordinary course of business.  Before isolating
the problematic transaction leading to these harsh consequences,
it is best to first understand the rule in the context where the
discontinuation of the security interest is without dispute.
Whether consumers realize it or not, they rely upon section 9-
320(a) whenever purchasing goods from a retail establishment
because the more specific provision, section 9-315(a)(1), states
that a perfected security interest continues in the collateral upon
any disposition, unless some other exception in Article 9 ap-
plies.6  It is common for persons who are in the business of sell-
ing goods of a kind, like watches, appliances, sports equipment,
or automobiles, to seek a loan in order to purchase inventory to
sell to the public.  Before a lender?usually a bank?will extend
credit, it normally requires the dealer, or debtor, to give the
lender a security interest in the inventory.  If the dealer defaults,
normally the security agreement allows the lender to foreclose
upon the collateral and sell it so that it can satisfy any remaining
debt.  However, section 9-320(a) is an exception to section 9-
315(a)(1) because it automatically discontinues the security inter-
est so that the goods purchased are no longer encumbered by the
lender?s security interest.  Section 9-320(a)?s effect ensures that
6 Old ? 9-306(2) states: ?Except where this Article otherwise provides, a security
interest continues in collateral notwithstanding sale, exchange or other disposition
thereof unless the disposition was authorized by the secured party in the security
agreement or otherwise, and also continues in any identifiable proceeds including
collections received by the debtor.?  U.C.C. ? 9-306(2) (revised 2001).
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292 OREGON LAW REVIEW [Vol. 83, 2004]
the buyer acquires the goods with ?clear title.?7
For example, suppose Smith, a buyer in the ordinary course of
business,8 purchases goods from a dealer?s inventory. Smith
takes free, or assumes ownership free and clear of the existing
security interest in the goods purchased, because section 9-320(a)
states that buyers in the ordinary course of business assume title
to the goods free of the security interest if the security interest
was created by the buyer?s seller. In this case, the dealer is the
buyer?s seller, the dealer selling the goods, and the buyer is
Smith.  Without this rule, buyers would likely hesitate before
purchasing goods from a dealer because the buyer could not be
certain it would acquire clear title, which section 9-320(a) en-
sures.  The alternative would be cumbersome.  That is, without
this statute, before purchasing goods, the buyer would need to
check the filing system in order to determine if the goods are
encumbered or verify if the dealer is authorized to sell the goods
free of the security interest.  This rule frees consumers from the
task of checking the filing office or verifying the dealer has the
authority to sell the goods.  In effect, section 9-320(a) encourages
consumers to purchase freely.9  In this context it is clear how sec-
tion 9-320(a) facilitates commercial transactions.
The general application of section 9-320(a) does not always
yield such favorable results. For example, suppose Jones
purchases an automobile from a person who is in the business of
7 A title free from any encumbrances, burdens, or other limitations. BLACK?S
LAW  DICTIONARY 1493 (7th ed. 1999).
8 U.C.C. ? 1-201(b)(9) defines ?Buyer in ordinary course of business? as:
[A] person that buys goods in good faith, without knowledge that the sale
violates the rights of another person in the goods, and in the ordinary
course from a person, other than a pawnbroker, in the business of selling
goods of that kind.  A person buys goods in the ordinary course if the sale
to the person comports with the usual or customary practices in the kind of
business in which the seller is engaged or with the seller?s own usual or
customary practices.  A person that sells oil, gas, or other minerals at the
wellhead or minehead is a person in the business of selling goods of that
kind.  A buyer in ordinary course of business may buy for cash, by ex-
change of other property, or on secured or unsecured credit, and may ac-
quire goods or documents of title under a preexisting contract for sale.
Only a buyer that takes possession of the goods or has a right to recover
the goods from the seller under Article 2 may be a buyer in ordinary course
of business.  Buyer in ordinary course of business does not include a person
that acquires goods in a transfer in bulk or as security for or in total or
partial satisfaction of a money debt.
9 RUSSELL A. HAKES, THE ABC?S OF THE UCC.  REVISED ARTICLE 9 SECURED
TRANSACTIONS 89 (2000).
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The Article 9 Buyer?s Seller Rule 293
selling goods of the kind.  Like most consumers, assume that
Jones cannot pay for the automobile outright, so a bank, or even
the car dealer itself, enables Jones to purchase the automobile on
credit, and in exchange, Jones gives the lender a security interest
in the automobile.  After the purchase, but before Jones is fin-
ished paying back the debt to the secured party, she either sells
the automobile, or trades it in as a partial exchange for a new
automobile to a third party who is in the business of selling auto-
mobiles.  In this situation, although the seller, Jones, created the
security interest, the third-party dealer will not take free of the
existing security interest because the dealer is not a buyer in the
ordinary course.  Jones? status as a mere consumer, and not a
dealer of cars, prohibits the third-party dealer from becoming a
buyer in the ordinary course of business.10  Nevertheless, the
third-party dealer subsequently places the used automobile in
her inventory for sale to the public.  This new buyer, Edwards,
purchases the automobile subject to the original security interest
because her seller, the third-party dealer, did not create the se-
curity interest; rather, Jones did.
In this situation, Edwards, a buyer in the ordinary course of
business, purchases the used automobile from the third-party
dealer, but it is subject to the existing security interest because
Edwards?s seller, the third-party dealer who purchased the used
automobile from Jones, did not create the security interest.  Af-
ter Jones sells the automobile to the third-party dealer, she dis-
continues making payments to her secured party because the
third-party dealer assures her that it will satisfy the remaining
debt.  At this juncture, a textbook-scenario section 9-320(a) pri-
ority dispute begins between Edwards and her lender and the
secured party that enabled Jones to initially purchase the car.
The third-party dealer either fails to use the proceeds to pay
Jones? secured party, or it will file for bankruptcy.11  As a result,
Jones? secured party forecloses on the collateral so that it can sell
and satisfy the amount it was due.
Courts and legal scholars have questioned section 9-320(a)?s
narrow scope and the anomalous consequences that befall some
buyers in the ordinary course.  Professors White and Summers
note that
10 See U.C.C. ? 1-209(9).
11 Ocean County Nat?l Bank v. Palmer, 457 A.2d 1225, 1227 (N.J. Super. Ct. App.
Div. 1983).
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the difficulty is that the policy of 9-320 would seem to cover
[the innocent purchaser, Edwards, in the second example
above].  [Edwards] is neither more nor less than a garden vari-
ety purchaser who pays cash and buys out of the inventory of a
dealer [just as Smith did in the first example above].12
Barkley Clark also recognizes this anomaly.  He states that if
the purposes behind ?[t]he Article 9 priority rules [are aimed to-
ward] encourag[ing] the flow of commerce not only by protecting
buyers out of inventory under section 9-307(1), but also by giving
special privileges to other kinds of good faith purchasers, such as
purchasers of chattel paper,?13 it seems odd that section 9-320(a)
does not also protect purchasers like Edwards because most peo-
ple recognize that the rule?s primary purpose is to protect good-
faith innocent purchasers like her.  In an effort to avoid this
harsh effect, one might assume that courts would exercise their
authority to liberally construe and apply the Code when resolv-
ing priority disputes of this kind so that both Smith and Edwards
are treated similarly.  Courts rarely use this language to protect
buyers such as Edwards,14 and this Comment will later show why
12 WHITE & SUMMERS, supra note 5, at ? 24-8(b).
13 BARKLEY CLARK & BARBARA CLARK, THE LAW O F  SECURED TRANSACTIONS
UNDER THE UNIFORM COMMERCIAL CODE, ? 3.01[2][d] (rev. ed. 2002).
14 In Gordon v. Hamm, the court struggled with factual circumstances similar to
my example above ?because the four parties to this lawsuit are not morally blame-
worthy, yet someone must suffer the loss occasioned by the absent thief.  Legally,
however, the case is simple.?  74 Cal. Rptr. 2d 631, 635 (Cal. Ct. App. 1998).  In
Milledgeville Cmty. Credit Union v. Corn, the trial court was:
particularly troubled by this situation because of the apparent innocence of
[defendant] who is a buyer in the ordinary course of business, and there-
fore tried to evaluate the public policy considerations.  In doing so, I look
to any wrongdoing or apparent wrongdoing on the part of either party.
Plaintiff . . . also appears to be entirely innocent of any wrong doing. They
have loaned money and done precisely what the statute required in order
to perfect their security interest in that . . . .  The question becomes, should
the law put the onus on the owner of the secured interest to follow the
security interest and insure that it not be sold off improperly, or should the
onus instead be placed on the purchaser of a vehicle to insure that he
purchases clear title.
716 N.E. 2d 864, 866-67 (Ill. Ct. App. 1999) (quoting trial court) (alterations in
original).
In Martin Bros. Implement Co. v. Diepholz, the court recognized that
the result which flows from this construction of the statute may seem un-
just.  The buyer who purchases goods from a seller who has created the
security interest takes free of that interest even though the buyer could
conceivably discover the existence of a security interest by a title search.
When a security interest exists in favor of a remote seller, however, that
same buyer will not take the goods free and clear of the security interest,
even though the burden of locating the remote party?s interest is much
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The Article 9 Buyer?s Seller Rule 295
such a construction is wrong.
Despite the years of painstaking drafting, most law students
will attest that after studying Article 9, the Code?s ?rules of prior-
ity are exquisitely complicated.?15  In order to comprehend the
correct meaning of these rules and how they operate, it is recom-
mended that one first attempt to ?understand the policy behind
each rule.?16  However, this solution is not very helpful because
it is so difficult to interpret or articulate any reasonable policy
underlying the limited scope of section 9-320(a) because the
Drafters did not provide any explanation for it.17  Finally, the Of-
ficial Comments for Old section 9-307(1), and its revised counter-
part, section 9-320(a), are unhelpful in providing the needed
clarification of this facially simple but anomalous section.
greater.  However, this is consistent with the general rule set forth in the
Code that a security interest continues in collateral despite a sale or other
disposition of that collateral.
440 N.E.2d 320, 325 (Ill. App. Ct. 1982).
In Exchange Bank of Osceola v. Jarrett, the court also recognized that
this is a harsh result, since the purchaser . . . had no means to learn . . . that
the property he purchased was subject to a security interest.  It may be that
legislative action is necessary to prevent such results in the future.  Since
we are bound by the enacted laws, and must give full faith and credit to the
laws of our sister states, no other course is open to us here.
588 P.2d 1006, 1009 (Mont. 1979).
Finally, in General Motors Acceptance Corp. v. Troville, the court showed that its
hands were tied and ?if a hardship results from our interpretation, it is for the Legis-
lature to remove it.?  6 U.C.C. Rep. Serv. 409, 413 (Mass. App. Ct. 1969).
15 WHITE & SUMMERS, supra note 5, at ? 24-1.
16 Id.
17 Richard Nowka, Section 9-320(a) of Revised Article 9 and the Buyer in Ordinary
Course of Pre-Encumbered Goods: Something Old and Something New, 38 BRAN-
DEIS L.J. 9, 11 (1999-2000) (Section 9-320(a)?s ?Comment includes no statement of
the policy behind the requirement.  The continuance of the BIOC Rule without
comment on the purpose for its inclusion is disappointing in view of the previous
lack of explanation and the literature commenting on the issue.?).  Robert Dugan,
Buyer-Secured Party Conflicts Under Section 9-307(1) of the Uniform Commercial
Code, 46 U. COLO. L. REV. 333, 347 (1975) (The author concludes that ?it is difficult
to perceive any compelling justification for the prevailing interpretation of the cre-
ated-by-his-seller language . . . .?); Charles L. Knapp, Protecting the Buyer of Previ-
ously Encumbered Goods: Another Plea for Revision of UCC Section 9-307(1), 15
ARIZ. L. REV. 861, 864 (1973) (stating that the results are ?wrong because it ignores
economic and social realities, wrong because it misallocates an unavoidable risk in-
herent in the financing of goods, and wrong because it fails to follow the logic of the
Code itself?); Special Project, The Priority Rules of Article 9, 62 CORNELL L. REV.
834, 963 (1977) (hereinafter ?Special Project?) (arguing that there is no valid distinc-
tion between two different buyers in the ordinary course of business who purchase
goods out of a dealer?s inventory that justifies the harsh treatment to the particular
buyer who unknowingly purchased preencumbered goods).
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296 OREGON LAW REVIEW [Vol. 83, 2004]
B. Statutory Contraction
Before a reader attempts to wrap her mind around the mean-
ing and operation of any Article 9 priority rule, she should first
think of these rules as serial competitions pitting the secured
creditor against a series of opponents.  In each case one competi-
tor is a secured creditor, while the other competitor changes with
each section.  Thus section 9-317 covers a secured creditor versus
a lien creditor; section 9-322 covers the case of a secured creditor
versus secured creditor.18  In a buyers of goods context, section
9-320(a) covers the case of a secured creditor against the buyer in
the ordinary course.19
Consequently, the starting point for any discussion about Arti-
cle 9?s priority rules begins with section 9-201(a),20 the section
where the security agreement acquires its power.  If the terms of
the ?security agreement?21 so provide, then upon the debtor?s
default the secured party always wins because its rights to the
collateral ?are superior to anyone, anywhere, anyhow? unless an
exception to this rule exists elsewhere in the Code.22  The
strength of this section cannot be over-emphasized.  The section
18 WHITE & SUMMERS, supra note 5, at ? 24-1.
19 When the security interest is not perfected, ? 9-317(b) allows certain buyers of
goods to take free under circumstances different than what ? 9-307(1) and ? 9-320(a)
require.  Section 9-317 states: ?Except as otherwise provided in subsection (e), a
buyer . . . of . . . goods . . . takes free of a security interest . . . if the buyer gives value
and receives delivery of the collateral without knowledge of the security interest . . .
and before it is perfected.?  U.C.C. ? 9-317(b).  I do not discuss this exception be-
cause it is rare for a secured party to not perfect.  Most of the cases I examine in-
volve sophisticated secured parties who are familiar with the requirements of Article
9 and the benefits perfection provides.
20 U.C.C. ? 9-201(a) states: ?Except as otherwise provided in [the Uniform Com-
mercial Code], a security agreement is effective according to its terms between the
parties, against purchasers of collateral, and against creditors.? However, old
U.C.C. ? 9-201 states:
Except as otherwise provided by this Act a security agreement is effective
according to its terms between the parties, against purchasers of the collat-
eral, and against creditors.  Nothing in this Article validates any charge or
practice illegal under any statute or regulation thereunder governing usury,
small loans, retail installment sales, or the like, or extends the application
of any such statute or regulation to any transaction not otherwise subject
thereto.
U.C.C. ? 9-201 (revised 2001).
21 ??Security Agreement? means an agreement that creates or provides for a se-
curity interest.?  U.C.C. ? 9-102(a)(73).
22 Special Project, supra note 17, at 842; CLARK & CLARK, supra note 13, at ?
3.02.
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The Article 9 Buyer?s Seller Rule 297
?means what it says,?23 and it does not give the secured party?s
competitors much, if any, latitude to get out from under it.  Pro-
vided there are no exceptions, the secured party generally wins
most competitions.
Just as quickly as this section confers broad power upon se-
cured parties, it immediately qualifies itself by stating that there
are exceptions to this rule found throughout the entire Code.24
The importance of the first seven words of section 9-201, ?except
as otherwise provided in this Act?, cannot be over-emphasized
because they bring in all of the Article 9 priority exceptions
along with any others found throughout the Code.25  ?Thus the
starting point for any analysis about the rights of a buyer vis-`
a prior secured creditor is the security agreement itself.?26
The general rule under section 9-201(a) is confirmed by the
more specific provision at section 9-306(2),27 which states that
the security interest continues upon the sale or any other disposi-
tion unless the secured party authorizes the disposition.28  Nor-
mally, an inventory lender gives its debtor express permission to
sell because the lender expects the debtor-dealer to sell her in-
ventory and amortize the loan with the sale proceeds.29  In addi-
tion, the secured party?s protection continues after the sale
because it also has a security interest in the proceeds.30
This Comment does not focus on authorized transactions; it
focuses on transactions where the dealer had no opportunity to
authorize the sale. Normally, the secured party is operating
under the assumption that its debtor continues to possess the col-
lateral and will continue to make payments in accordance with
the security agreement.  However, if the debtor either sells or
trades the collateral in exchange for a new purchase without in-
forming the secured party, then the secured party is not in posi-
tion to authorize the sale because it is under the assumption its
debtor is still in possession. Almost without exception, the
debtor?s security agreement expressly forbids any disposition
without the written consent of the secured party.  If a subsequent
23 WHITE & SUMMERS, supra note 5, at ? 24-2.
24 U.C.C. ? 9-201(a).
25 Special Project, supra note 17, at 842.
26 WHITE & SUMMERS, supra note 5, at ? 24-8.
27 See supra note 6.
28 WHITE & SUMMERS, supra note 5, at ? 24-8
29 CLARK & CLARK, supra note 13, at ? 3.02[3][b].
30 U.C.C. ? 9-315(a)(2).
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298 OREGON LAW REVIEW [Vol. 83, 2004]
buyer purchases these goods after the initial debtor sold or ex-
changed them with a dealer, and they are encumbered by a pre-
existing security interest that was not created by the buyer?s
seller, the subsequent buyer?s primary course of action will come
under section 9-307(1) or section 9-320(a), because these sections
are devoted to unauthorized dispositions,31 or cases where the
parties are silent about authorization.
C. Buyers in the Ordinary Course
Section 9-320(a), and its older counterpart section 9-307(1),
have two primary elements.  First, the buyer must be a buyer in
the ordinary course.  Second, the buyer?s seller must have cre-
ated the security interest in order for the security interest to be
discontinued.  I will examine the buyer?s seller element in Part
III below.  In regard to the buyer in the ordinary course element,
it is composed of five sub-elements.  Below I discuss each sub-
element and the problems commonly associated with these provi-
sions.  In the end, I intend to show the proper meaning, opera-
tion, and application of each sub-element so that upon the
synthesis of these sub-elements one can determine with certainty
when a buyer acquires the goods free of the security interest.
Article 9 does not define buyers in the ordinary course; rather,
Article 1 defines it.32  The term is almost exclusively limited to
buyers out of inventory;33 however, exceptions apply if the
seller?s business comports with ordinary business practices.34
This section breaks down the five sub-elements, most of which
31 U.C.C. ? 9-320(a), Comment 6 states:
The limitations that subsections (a) and (b) impose on the persons who
may take free of a security interest apply of course only to unauthorized
sales by the debtor.  If the secured party authorized the sale in an express
agreement or otherwise, the buyer takes free under Section 9-315(a) with-
out regard to the limitations of this section.  (That section also states the
right of a secured party to the proceeds of a sale, authorized or unautho-
rized.).  Moreover, the buyer also takes free if the secured party waived or
otherwise is precluded from asserting its security interest against the buyer.
32 See supra note 8.
33 CLARK & CLARK, supra note 13, ? 3.04[1].
34 Id. at 3-47. See also Rhode Island Hosp. Trust Co. v. Leo?s Used Car Exch.,
Inc., 314 F. Supp. 254, 255-56 (D. Mass. 1970) (holding that the sale of a car at a
location at which neither buyer nor seller was doing business was not a transaction
in the ordinary course of business); Bank of Ill. v. Dye, 517 N.E. 2d 38, 40 (Ill. App.
Ct. 1987) (holding that the test for ?buyer in the ordinary course of business? is
satisfied if the sale comported with customary business practices and the buyer was
in fact a typical buyer of the seller).
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The Article 9 Buyer?s Seller Rule 299
are understandable without much explanation or analysis, while
others require reference to other Code definitions and case law
to interpret and determine their effect.
First, in order to be a buyer in the ordinary course, the buyer
must purchase the goods in ?good faith.?35  The buyer?s actual
knowledge is probative when determining good faith, rather than
what a reasonable person in similar circumstances should have
known.36  The contracting parties? conduct determines good faith
in regard to their obligations.  Good faith is troublesome because
no two instances of it are the same despite the fact that the Code
provides a standard definition for it.
Hodges Wholesale Cars v. Auto Dealer?s Exchange of Birming-
ham helps flesh out the meaning.37  In this case, Alexander sold
to a person whose identity was not disclosed, and the court re-
ferred to this person as the ?initial buyer.?38  At the time of the
sale, Alexander endorsed the title to the bearer of the title and
gave it to the initial buyer.39  The initial buyer gave Alexander a
check in exchange for the car and the title.40  Subsequently, the
initial buyer resold the car to Express, but the initial buyer held
himself out to be Alexander.41  Express issued a check payable to
?Doyle Alexander? and took possession of the car and its title.42
Because the initial buyer passed a bad check to Alexander, the
court had to determine whether the initial buyer could transfer
good title when it only possessed voidable title.43  The court held
that
Express did not know, and had no reason to know, that the
initial buyer?s representations were false.  The initial buyer
held himself out to be Doyle Alexander, and the certificate of
35 The definition for ?good faith? in Article 1 is subjective: ?[H]onesty in fact in
the conduct or the transaction concerned.?  U.C.C. ? 1-201(19).  However, the defi-
nition in Article 9 has both subjective and objective elements: ?[H]onesty in fact and
the observance of reasonable commercial standards of fair dealing.?  U.C.C. ? 9-
102(a)(43).  If the buyer is a dealer in the business of selling goods of the kind or
merchant, then the two-prong definition is used.
36 Louis & Diederich, Inc. v. Cambridge European Imports, Inc., 234 Cal. Rptr.
889, 896 (Cal. Ct. App. 1987).
37 Hodges Wholesale Cars v. Auto Dealer?s Exch. of Birmingham, 628 So. 2d 608
(Ala. 1993).
38 Id. at 609.
39 Id.
40 Id.
41 Id.
42 Id.
43 Id. at 610.
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300 OREGON LAW REVIEW [Vol. 83, 2004]
title to the car showed that Alexander was the owner.  The
certificate of title bore Alexander?s unforged signature as
seller.  Express gave the initial buyer a check made payable to
Doyle Alexander.  There was no evidence presented to show
that, in negotiating and consummating the purchase of the car,
Express had been less than honest or had failed to observe
reasonable commercial standards of fair dealing.44
Consequently, the court held that Express acted in good faith
because it subjectively did not know the initial buyer was not Al-
exander, nor would a reasonable person have known.45
Second, the buyer must be without knowledge that the sale vi-
olates the rights of a third party.  That is, it must not know the
sale violates some term in the seller?s security agreement.  As
stated above, most security agreements do not allow disposition
without the secured party?s written authorization.  If the buyer
knows that the sale violates a term such as this, then the buyer
knows the sale violates the rights of a third party.  Mere knowl-
edge that the goods are subject to a security interest does not
show that the buyer knew the sale violated the rights of a third
party.46  In the unproblematic transactions described above,47
third-party rights are not at stake since the dealer?s lender antici-
pates that she will sell the goods in order to pay off the loan.  If
the third party is a dealer of used cars, who later turns around
and sells to a buyer in the ordinary course, the new buyer is sub-
ject to the ?without knowledge? requirement.  This sub-element
is not difficult to overcome in the multiple-sales context because
buyers typically do not suspect a dealer?s inventory is subject to a
security agreement that prohibits the sale to the public.48
44 Id. at 611.
45 The drafts for revised Article 1 do away with the subjective formulation and
adopt the definition found in the other revised articles.  Revised Article 1, in SE-
LECTED COMMERCIAL STATUTES, at 1084 (William H. Henning ed. 2001).
46 Rome Bank & Trust Co. v. Bradshaw, 237 S.E.2d 612, 615 (Ga. Ct. App. 1977).
47 Supra Part II.A.
48 The ?good faith? and ?without knowledge? requirements have left some to ask
what the latter adds to the former since a person cannot buy in good faith if he
knows the sale violates the rights of a third party. WHITE & SUMMERS, supra note 5,
at ? 24-8(b).  Professor James Steven Rogers reasons that the confusion might be
caused by a quirk in language.  James Steven Rogers, Policy Perspectives On Revised
U.C.C. Article 8, 43 U.C.L.A. L. REV. 1431, 1470 (1996).  Well before the UCC, in
the eighteenth and nineteenth century, a person who took free of adverse claims was
not described as a ?good faith purchaser? but a ?bona fide purchaser for value and
without notice.? Id.  Since ?bona fide? only refers to ?value? and ?without notice,?
confusion developed in the twentieth century when the words ?good faith? were
used in exchange which Rogers surmises was due to a desire to substitute all-English
phrases for Latin terms. Id.  This shift in use can sometimes cloud the issue since
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The Article 9 Buyer?s Seller Rule 301
The sale of used automobiles brings a different problem to
light for both the ?good faith? and ?without knowledge? sub-ele-
ments.  The perfection of a security interest in an automobile is
not governed by the traditional filing method in section 9-
310(a).49  In a Florida Court of Appeals case, Caron purchased a
new motorhome and Green Tree enabled Caron to make the
purchase.  In exchange, Caron gave Green Tree a security inter-
est in the motorhome.50  Green Tree noted its security interest on
the title.51  Two years after the sale, but before Caron paid his
debt to Green Tree, and without its authorization, Caron traded
the motorhome to Wildcat, who later sold the motorhome from
its inventory to Zimerman.52  The court held that Zimerman was
not a buyer in the ordinary course of business because he failed
to investigate the condition of the title.53  The court recognized
that the notation of a lien on a certificate of title is constructive
notice,54 and any such buyer assumed the existing ?defects and
liens on the title.?55  However, jurisdictions are split on this
issue.56
In  Franklin v. First National Bank of Morrill, Nebraska,
good faith does not always show that value was given. Id.  In addition to Professor
Rogers? observations, the 1956 Recommendations of the Editorial Board for the
Uniform Commercial Code shed some light on the issue.  It noted that ?[t]he refer-
ence to ?Good Faith? was added on the recommendation of the New York Commis-
sion to make it clear that one who buys dishonestly is not within the definition.  The
?without knowledge? addition spells out one important type of dishonesty.?  1956
Recommendations of the Editorial Board of the Uniform Commercial Code, in
XVIII UNIFORM COMMERCIAL CODE DRAFTS, 37 (Elizabeth Slusser Kelly ed. 1984).
49 The perfection of a security interest to goods subject to a statute in ? 9-311(a)
does not require the filing of a financing statement.  U.C.C. ? 9-310(b)(3).  A person
perfects a security interest in an automobile by complying with the applicable certifi-
cate of title statute.  U.C.C. 9-311(a)(2).
50 Green Tree Acceptance, Inc. v. Zimerman, 611 So. 2d 608, 609 (Fla. Dist. Ct.
App. 1993).
51 Id.
52 Id.
53 Id. at 610.
54 Id.
55 Id.
56 See, e.g., Thorn v. Adams, 865 P.2d 417, 419-20 (Or. Ct. App. 1993) (holding
that nothing in the motor vehicle statutes required plaintiff to take possession of the
certificate of title at the moment she purchased the car in order to acquire legal title.
Absent such a requirement, plaintiff?s ?failure? to obtain the certificate of title at the
moment that she purchased the car is not unreasonable and does not put plaintiff on
notice that the transaction was ?unusual.?); Franklin v. First Nat?l Bank of Morrill,
Neb., 848 P.2d 775, 780 (Wyo. 1993) (holding that mere knowledge that the goods to
be purchased are secured does not show the person knew the sale violated the secur-
ity agreement); Ellsworth v. Worthey, 612 S.W.2d 396, 400 (Mo. Ct. App. 1981)
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302 OREGON LAW REVIEW [Vol. 83, 2004]
Franklin purchased a used automobile from a dealer whose
lender had a perfected security interest by noting its lien on the
title.57  After the dealer filed for bankruptcy, the dealer?s lender
argued it was entitled to possession of the automobile.58  The
lower court reasoned that there would be little or no effect when
one notes its lien on the title if it is only going to be voided by a
subsequent sale in the ordinary course.59  In its decision, the
lower court relied on the Motor Vehicle Registration Act rather
than the Uniform Commercial Code in determining the priority
issue.60  The Franklin court reversed the lower court?s decision
because the Uniform Commercial Code determines the outcome
in priority disputes, not registration acts.61
The ?good faith? and ?without knowledge? sub-elements tie in
well with the third sub-element, which requires the buyer to
make her purchase for cash, by exchange for other property, or
on secured or unsecured credit.  However, she may not acquire
goods in bulk or in partial or complete satisfaction of a pre-ex-
isting debt.
Fourth, the buyer must purchase the goods from a person who
is in the business of selling goods of the kind.  This is usually not
difficult to determine since a watch dealer sells watches, a dealer
in automobiles sells automobiles, and an appliance dealer sells
appliances.62  However, there are limits.  In Hempstead Bank v.
Andy?s Car Rental System, Inc., the court held a person who
rents cars is not a dealer even when he subsequently sells them.63
As a result, this precluded the buyer from acquiring the protec-
tions that go along with a buyer in the ordinary course of busi-
ness.64  In any event, the determination of this sub-element
usually boils down to a question of fact, in which case the courts?
decisions vary.65
In addition, it is important to note that it is not necessary for
(holding sale of a used vehicle without delivery of a duly assigned certificate of title
at the time possession to the vehicle is given is ordinarily fraudulent and void).
57 Franklin, 848 P.2d at 778.
58 Id. at 777.
59 Id. at 778.
60 Id.
61 Id. at 779.
62 WHITE & SUMMERS, supra note 5, at ? 24-8(b).
63 Hempstead Bank v. Andy?s Car Rental Sys. Inc., 312 N.Y.S.2d 317, 320-22
(N.Y. 1970).
64 Id.
65 Foy v. First Nat?l Bank of Elkhart, 868 F.2d 251, 254 (7th Cir. 1989).
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The Article 9 Buyer?s Seller Rule 303
the dealer to be a dealer when she initially obtains the goods in
order for her to turn around and sell the goods to a consumer
without violating the buyer in the ordinary course of business
provision.  That is, the person making the sale must be a dealer
only at the time of the sale, not at the time the person acquires
the goods.  The Supreme Court of Maine decided a case where a
husband and wife jointly purchased a boat from a boat dealer.66
They gave their lender a security interest in the boat and the
lender took all the necessary steps to perfect this security inter-
est.67  After this purchase, but before satisfying the debt, the hus-
band purchased a boat dealership and subsequently put the boat
in its inventory for sale to the public.68  Later, the husband sold
the boat to Estes, who gave Barco a security interest in the boat
which Barco perfected.69  After the sale, the husband failed to
use the proceeds to pay off the secured creditor and conse-
quently the creditor attempted to foreclose on the collateral.70  A
priority battle ensued between the initial lender and Estes, and
the court held Estes was a buyer in the ordinary course because
at the time of the sale the husband was a boat dealer.71  The fact
that the wife was not a dealer did not taint Estes? buyer in the
ordinary course status because she had the power to authorize
such a disposition.72
Fifth, a person is a buyer in the ordinary course only if she
takes possession of the goods or has right to possession under
Article 2.73  After satisfying the requirements of section 1-201(9),
66 Key Bank of Maine v. Estes, 669 A.2d 162 (Me. 1995).
67 Id.
68 Id.
69 Id.
70 Id. at 163.
71 Id.
72 Id.
73 Carey Aviation, Inc. v. Giles World Marketing, Inc., 46 B.R. 458, 461-62
(Bankr. D. Mass. 1985).  The court held that where
the goods have been identified to the contract of sale as determined under
? 2-501 . . . the buyer obtains a special property right in them which, even
though he has not yet accepted the goods, gives him a right of action under
? 2-722 against a secured party who causes him actionable injury in dealing
with the goods.
Id. at 461-62.  Despite the fact that the goods were not in a deliverable state, they
were still identifiable because the seller noted its place on the assembly line and
gave it an identification number. Id.  The adversary proceeding of In re Doughty?s
Appliance, Inc., 236 B.R. 407, 410 (Bankr. D. Or. 1999), held that buyers who took
possession but had not paid were still buyers in the ordinary course but would have
to make full payment if they expected to keep the goods.
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304 OREGON LAW REVIEW [Vol. 83, 2004]
the buyer in the ordinary course of business
takes his place beside the holder in due course of negotiable
instruments, the bona fide purchaser of negotiable documents,
the bona fide purchaser of investment securities, the bona fide
purchaser of chattel paper, and others in a select circle of bona
fide purchasers of certain kinds of property who are privileged
characters.  Buyer in ordinary course of business is the goods-
purchasing counterpart.  While no two characters in the group
are quite the same, they have in common the fact that they all
acquire rights better than the rights of some kinds of claimants
who did not authorize the transfer.74
On its face, it appears that if a person is a buyer in the ordinary
course, she will take the goods free of any pre-existing claim, just
as the Code protects other kinds of good faith purchasers.
D. The Limitations of Buyer?s Seller Rule
The buyer?s seller element, in either the old or the revised ver-
sion, is the more interesting element not only because of the ad-
verse effects it imposes upon some buyers in the ordinary course
of business, but also for the countless and creative means buyers,
secured creditors, and judges use when attempting to avoid the
harsh results.  Consequently, it is no surprise that most of the
case law decided under either section 9-307(1) or section 9-320(a)
involves this single issue.75
In short, if a person buying goods is a buyer in the ordinary
course and the security interest was created by the buyer?s seller,
then the buyer takes the goods free of the security interest de-
spite the language in section 9-306(2) or Revised section 9-
315(a)(1), and even the language in section 9-201(a), all of which
more or less state that the security interest withstands disposi-
tion.  Before discussing the limitations of the buyer?s seller rule,
and whether there are ways around it, it is important to deter-
mine which party created the security interest: the debtor buyer
or the secured party extending credit.
Section 9-203 outlines which party is the creator of the security
interest.  This section states that a security interest does not at-
tach to the collateral until it becomes enforceable against the
debtor.76  Enforceability is determined by three elements.  First,
74 Robert H. Skilton, Buyer in Ordinary Course of Business Under Article 9 of the
Uniform Commercial Code (and Related Matters), 1974 WIS. L. REV. 1, 2 (1974).
75 WHITE & SUMMERS, supra note 5, at ? 24-8(b).
76 U.C.C. ? 9-203(a).
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The Article 9 Buyer?s Seller Rule 305
?value? must be exchanged.77  Second, the debtor must have
rights in the collateral or have the power to transfer those rights
in the collateral to a secured party.78  Third, the debtor executes
a security agreement that provides a description of the collat-
eral.79  It is important to recognize that the security interest does
not become enforceable until the debtor, not the secured party,
authenticates a security agreement.  That is, the security interest
is not transferred to the lender without the debtor?s signature on
the security agreement.  This is also shown by sketching the rela-
tionship between the debtor and secured party and noting that
the secured party is not in the position to create the security
interest.
For example, Smith buys an appliance from a dealer.  The
dealer?s inventory is subject to its lender?s security interest.  If
the sales are unauthorized, Smith, a buyer in the ordinary course
of business, takes free because her seller, the dealer, created the
security interest.  This section is meant to function in the context
of inventory sales that are subject to a security interest.80  It
would be strange to suppose the lender or the secured party was
the party that created the security interest because the secured
party would never be in the position where it could sell the
goods.  Its business is extending credit, not selling goods.  As a
result, when the litigation only involves the secured party, or
where the dealer that made the initial sale is the secured party,
and the debtor is no longer involved in the priority dispute, Old
section 9-306(2) or Revised section 9-315(a)(l) will be the appli-
cable rule because the issue in those cases turns on whether the
secured party authorized the disposition.
The issue normally involved in this context evolves where the
77 U.C.C. ? 9-203(b)(1).  The definition for ?value? is found in ? 1-201(44) which
states:
[a] person gives ?value? for rights if he acquires them (a) in return for a
binding commitment to extend credit or for the extension of immediately
available credit whether or not drawn upon and whether or not a charge-
back is provided for in the event of difficulties in collection; or (b) as secur-
ity for or in total or partial satisfaction of a pre-existing claim; or (c) by
accepting delivery pursuant to a preexisting contract for purchase; or (d)
generally, in return for any consideration sufficient to support a simple
contract.
78 Id. ? 9-203(b)(2).
79 Id. ? 9-203(b)(3)(A).  There are three other ways a debtor can meet this final
condition.  See U.C.C. ? 9-203(b)(3)(B)-(D).  However, I do not discuss them be-
cause the cases I used for this analysis do not use these methods for attachment.
80 WHITE & SUMMERS, supra note 5, at ? 24-8(b).
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306 OREGON LAW REVIEW [Vol. 83, 2004]
encumbered goods were subject to at least one sale after the ini-
tial sale in which the security interest was created.81  Here is a
brief example of a typical multiple-sales transaction:
Jones . . . purchases a new automobile and gives a security
interest to Rao Bank; then . . . Jones trades the automobile in
(without revealing the security interest) to Purkayastha Mo-
tors, an automobile dealer who in turn sells the automobile to
Szot . . . .  Ultimately, Rao Bank attempts to recover the auto-
mobile from Szot.  Because the security interest was not cre-
ated by Szot?s seller (Purkayastha Motors), but by Jones, Szot
does not qualify for coverage under 9-320(a), and his interest
will be subordinate to the security interest of Rao Bank.82
In most instances, courts apply the buyer?s seller rule in accor-
dance with a plain reading of the statute. In re Sunrise R.V., Inc.
is an excellent example.83  In Sunrise, Ede purchased a Lindy
Motorhome (?Lindy?) from All Seasons.84  Ede gave All Seasons
a security interest in the Lindy but All Seasons later sold the
sales contract and security agreement to Yegen.85  Over a year
later, Ede traded the Lindy to Sunrise for credit; Sunrise was in
the business of selling motorhomes.86  At no point after the ini-
tial sale to Ede was Yegen notified of the trade-in.87  Subse-
quently, Sunrise put the Lindy in its inventory and sold it to
Carr.88  After Carr paid the debt owed to Sunrise for the Lindy,
he demanded that Yegen deliver the certificate of title, but Yegen
refused because the proceeds Sunrise received from the sale were
not used to satisfy the debt owed to him.89  At this point, a prior-
ity battled ensued.
In Sunrise, there was no dispute whether Yegen properly per-
fected his security interest but only whether the sale to Carr was
subject to or free from Yegen?s security interest.90  After the
court briefly summarized Old section 9-306(2), noting that secur-
81 I refer to this type of scenario as a multiple-sales transaction.
82 WHITE & SUMMERS, supra note 5, at ? 24-8(b).  The case recognized as being
the leading authority on this issue is National Shawmut Bank of Boston v. Jones, 236
A.2d 484 (N.H. 1967).  However, I do not recommend this case for insight on the
operation of the buyer?s seller element because the opinion is written with little if
any factual background and it is unclear who actually made the subsequent sale.
83 In re Sunrise R.V., Inc. 105 B.R. 587, 587 (Bankr. E.D. Cal. 1989).
84 Id. at 589.
85 Id.
86 Id.
87 Id.
88 Id.
89 Id.
90 Id. at 590.
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The Article 9 Buyer?s Seller Rule 307
ity interests survive disposition,91 it went on to state that the only
exception remotely applicable to this transaction was section 9-
307(1) and it correctly held that despite Carr?s buyer in the ordi-
nary course status, he could not take free because his seller, Sun-
rise, did not create the security interest.92  Rather, Ede created it
when he first purchased the Lindy from All Seasons.93
This example clearly shows the limitations imposed on all buy-
ers.  In addition to Carr?s inability to shake the security interest,
also note that even if Ede had been the seller, Carr would not
have been able to invoke the protections of section 9-307(1) be-
cause Ede was not a dealer of automobiles.
III
THE JUSTIFICATION FOR THE BUYER?S SELLER
RULE?S HARSH CONSEQUENCES
The difficulty most people struggle with while attempting to
understand section 9-320(a) is why the buyer?s seller element
precludes a buyer from gaining the protections of a buyer in the
ordinary course of business when this person purchases inventory
that is subject to a security interest not created by her dealer/
seller.  That is, the buyer is innocent and buying in good faith,
and it seems unreasonable to penalize someone in this context.
In the situation where buyers purchase goods from a dealer?s in-
ventory, and the dealer created the security interest, there is no
question that the Buyers of Goods Rule has the proper effect.  It
ensures that good-faith purchasers can assume that the security
interest in the dealer?s inventory is discontinued, and as a result,
the buyer does not have to stop to consider whether this transac-
tion will end up in litigation.94
Since our economy is driven by commercial transactions initi-
ated by consumers, it is easy to overlook the Code?s purpose.
That is, it not only ensures that good-faith purchasers are pro-
tected but it also protects secured parties that follow the letter of
the law by filing a financing statement so that their security inter-
ests are perfected.  Unfortunately, courts too frequently only fo-
cus on the protection of good-faith purchasers when considering
the factors that are traditionally recognized or understood to fa-
91 Id.
92 Id.
93 Id. at 591.
94 CLARK & CLARK, supra note 13, at ? 3.04[3].
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308 OREGON LAW REVIEW [Vol. 83, 2004]
cilitate or hasten commercial transactions.95  White and Summers
also get caught up in this by noting that
the policy of . . . [section 9-320] would seem to cover . . .  [buy-
ers in the ordinary course of business purchasing goods from a
person that did not create the security interest because these
persons are] . . . neither more nor less than a garden variety
purchaser who pays cash and buys out of the inventory of a
dealer.96
That is, there should be no difference in treatment between buy-
ers in the ordinary course of business merely because one hap-
pened to purchase goods encumbered by a remote party, not the
buyer?s seller, when on the face the dealer appeared to be selling
goods it was authorized to sell.
Despite the Drafter?s lack of formal commentary on the rule?s
elusive policy, the preservation of the rule through the initial
drafting process and two actual revisions should be a strong indi-
cation that there was a reasonable rationale in their minds.  In
the early stages of Article 9, the 1951 draft of section 9-307 did
not contain the buyer?s seller language.97  It is unclear whether
the absence of the buyer?s seller language in the earlier drafts
meant that the Drafters did not intend for this limitation to ap-
ply.  However, after its addition, the Drafters comment that the
change was only to clear up the rule?s ambiguity.98  After the
Code?s adoption, the Drafters continued to seek out recommen-
dations in order to clarify this new but rich Act.  In particular,
Donald Raspon?s observation is the most enlightening because
the Drafters failed to change the rule after he addressed the ap-
parent anomaly.  Rapson stated:
However, 9-307(1) provides only that he ?takes free of a se-
curity interest created by his seller.?  Here the security inter-
est was created not by his seller (Dealer Y) but by Dealer X.
Hence, on this plain-meaning interpretation, it would appear
that Buyer 1 does not take the item free of Bank A?s security
95 McFadden v. Mercantile-Safe Deposit & Trust Co., 273 A.2d 198, 209 (Md.
1971) (explaining that it is generally recognized that the purpose of section 9-307(1)
is to protect the buying public where the secured party finances inventory that is
sold to the public by the debtor in the regular course of the debtor?s business).
96 WHITE & SUMMERS, supra note 5, at ? 24-8(b).
97 March 21, 1951 Draft of Article 9, Secured Transactions, in VI UNIFORM COM-
MERCIAL CODE CONFIDENTIAL DRAFTS 67 (Elizabeth Slusser Kelly & Ann Puckett
eds. 1995).
98 1956 Recommendations of the Editorial Board of the Uniform Commercial
Code, in XVIII UNIFORM COMMERCIAL CODE DRAFTS 310 (Elizabeth Slusser Kelly
ed. 1984).
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The Article 9 Buyer?s Seller Rule 309
interest.  Is this a defect in the statute?99
The Drafters? failure to change the provision is evidence that
they intended for it to operate as such but also that they must
have had good reasons for this result because the drafting pro-
cess was undertaken with painstaking detail over the course of
many years.  The fact that the rule has withstood the revision
process (in fact, three to date) is not conclusive, but it is a good
indication that the Drafters did not overlook this effect.
Sometimes court opinions help uncover the policy.  A notable
case from Georgia was able to put its finger upon this elusive
policy when it recognized that the rule not only served to protect
buyers in the ordinary course of business but also secured par-
ties.100  In Commercial Credit Equipment Corp. v. Bates,101 Bates
purchased a tractor from a dealer and gave CCEC a security in-
terest in the collateral.102  Bates had no immediate use for the
tractor, so he leased it to Anderson so that he could use it in his
pond-digging business.103  While the tractor was in Anderson?s
possession, he lent it to the dealer who originally made the sale
to Bates as a favor but never recovered it from him.104  While the
tractor was stored on the dealer?s premises, it was subsequently
sold by an employee to McKinnon.105
The court reasoned that the rules in Article 9, in addition to
the rest of the Code, served to protect secured parties as well as
good-faith innocent purchasers like buyers in the ordinary course
of business.106  That is, if secured parties could not rely on the
protections section 9-306(2) offered, then too few lenders would
be willing to lend at all.107  Without this provision there would be
a chilling effect upon the Code?s primary purpose of facilitating
commercial transactions.108  Whether one views the problem
99 Donald J. Raspon, BUYERS IN THE ORDINARY COURSE OF BUSINESS AND PUR-
CHASERS OF THE RESULTING PAPER: PROBLEMS CONCERNING THE INTERRELATION-
SHIP OF U.C.C. SECTIONS 9-307 AND 9-308, in VI UNIFORM COMMERCIAL CODE
CONFIDENTIAL DRAFTS 197 (Elizabeth Slusser Kelly & Ann Puckett eds. 1995).
100 Commercial Credit Equip. Corp. v. Bates, 285 S.E.2d 560 (Ga. Ct. App. 1981).
101 The facts for this case are summarized in a related but separate opinion, Com-
mercial Credit Equip. Corp. v. Bates, 267 S.E.2d 469, 470 (Ga. Ct. App. 1980).
102 Id.
103 Id.
104 Id.
105 Id. at 470-71.
106 Commercial Credit Equip. Corp. v. Bates, 285 S.E.2d 560, 561 (Ga. Ct. App.
1981).
107 Id.
108 Id.
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310 OREGON LAW REVIEW [Vol. 83, 2004]
from the secured party?s perspective or the debtor?s, in the end,
the protection of secured parties also protects consumers and
dealers.  The mere fact that this rule fails to protect every single
buyer in the ordinary course of business is not a failure to facili-
tate commercial transactions because a strict application would
hamper the facilitation to a greater degree by making credit
transactions more dangerous.
Furthermore, the Code has other remedies for remote buyers
in the ordinary course.  Article 2 protects buyers in the ordinary
course who purchase goods from dealers that did not create the
security interest.  For example, an innocent purchaser who buys
goods encumbered by a security interest not created by its seller
has a cause of action for breach of the implied warranty of title
under section 2-312(1)(b) which provides that the goods pur-
chased are free from any security interest.109  Of course, if the
wrongful seller is insolvent or bankrupt, then the buyer obtains
nothing more than a mere judgment.  Nevertheless, it is not as if
those who cannot invoke the protections of section 9-307(1) or
section 9-320(a) are left with nothing.
In addition, it is not as if section 9-320(a) is the only section of
the Code that imposes harsh consequences upon innocent par-
ties.  For instance, section 2-403(2) gives a person who is in the
business of selling goods of the kind the power to transfer the
rights of the entruster.  In the case where a person brings her
heirloom watch to a watch dealer for repair, and the dealer sells
it, the justification for protecting the purchaser is that the true
owner should have been more careful in selecting where to take
her watch for repair.  Section 9-320(a) is justified with a similar
rationale.  In the majority of cases discussing the priority dispute
in the context of automobile sales, where perfection is regulated
by statute, not by the filing of a financing statement, the secured
party?s only means to perfect is by noting the lien on the certifi-
cate of title.  Some critics of section 9-320(a) incorrectly state
109 The relevant subsections state that there is in a contract for sale a warranty by
the seller that the title conveyed shall be good and the goods shall be delivered free
from any security interest unless otherwise agreed; a seller who is a merchant regu-
larly dealing in goods of the kind warrants that the goods shall be delivered free of
the rightful claim of any third person by way of infringement or the like, but a buyer
who furnishes specifications to the seller must hold the seller harmless against any
such claim which arises out of compliance with the specifications.  U.C.C. ? 2-312(1),
(3).
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The Article 9 Buyer?s Seller Rule 311
that the buyers in these transactions are not in a position to pro-
tect themselves.  For instance, Professor Lipson states:
[T]he secured party is usually in the better position to protect
itself; the buyer is never going to be able to learn of the secur-
ity interest of a person so far back in the chain; it is economi-
cally inefficient and perhaps morally repugnant to place the
loss with the bona fide purchaser, and so on.  Given the reluc-
tance of courts to enforce what they often characterize as a
harsh result, it is not surprising that the rule has few
cheerleaders.110
This is incorrect.  If the buyer is purchasing an automobile,
then the title should adequately inform the buyer whether the
automobile is subject to a security interest, not a financing state-
ment.  In these situations, section 9-320(a)?s harsh effects are jus-
tified because the buyer could have easily requested to see the
title, just as the person could have taken his watch to a more
trustworthy repair person.  If most of the troublesome cases liti-
gated under section 9-320(a) involve automobiles, then the rule?s
harsh effects are in order because it is not burdensome for a
buyer to look at the title, which one would expect a seller to pos-
sess if it were really intending to make a sale.  There are very
few, if any, reasonable explanations a consumer could give for
not noticing or asking to see the title before making the
purchase.  If the dealer does not have the title, then this should
immediately put the buyer on notice that either there is some-
thing wrong with the title or that this purchase might violate the
rights of a third party.111  In the end, the harsh effects are justi-
fied because it is not too much to require a buyer to beware in
this context.112
110 Jonathon C. Lipson, Remote Control: Revised Article 9 and the Negotiability of
Information, 63 OHIO ST. L.J. 1327, 1384-85 (2002).
111 Superior Bank, FSB v. Human Serv. Employees Credit Union, 556 S.E.2d 155,
159 (Ga. Ct. App. 2001) (holding that whenever a security interest is noted on the
certificate of title for a vehicle, the title is deemed to provide constructive notice to
future creditors and buyers that the vehicle is encumbered by a security interest.  As
a result, a subsequent purchaser or creditor is deemed to have constructive knowl-
edge of the prior perfected security interest thereby making his claim subordinate to
or ineffective in taking advantage of the buyer?s seller rule.).
112 Milledgeville Cmty. Credit Union v. Corn, 716 N.E.2d 864, 867 (Ill. App. Ct.
1999).
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312 OREGON LAW REVIEW [Vol. 83, 2004]
IV
WHAT ARE THE COURTS DOING? THE LIMITATIONS
OF AUTHORIZATION, ENTRUSTMENT, AND
THE PLAIN MEANING OF THE
BUYER?S SELLER RULE
There are a handful of decisions where courts have allowed
buyers in the ordinary course to take free even when they failed
to satisfy the Buyers of Goods Rule.  In these cases, the courts
discontinue the security interest by allowing the buyers to fall
back upon either section 9-306(2), section 2-403(2), or on a sus-
pect interpretation of section 9-307(1).  Buyers prevailing under
one of these alternatives are faced with other obstacles.  First, in
regard to section 9-306(2), buyers must show an authorization oc-
curred.  Second, if buyers are attempting to use section 2-403(2),
then they must show that entrustment applies in the context of
security interests not solely in the context of title transfers.
Third, when courts are not relying on the Code?s other sections
to extricate a remote buyer in the ordinary course from the pur-
ported harsh results, courts have struggled to construe section 9-
307(1) differently from its widely recognized meaning so that
they could arrive at the ?correct? result.
A. Authorization Under Section 9-306(2)
In  Central California Equipment Co. v. Dolk Tractor Co.,113
the court does not treat authorization lightly.  In Dolk, Progres-
sive purchased a corn harvester and Central secured the sale by
obtaining a security interest in the harvester.114  The security
agreement expressly prohibited the debtor from selling the col-
lateral unless the secured party gave written permission.115  After
it could no longer continue making payments, Progressive re-
quested help from Central to find a buyer so that the new buyer
could take over the payments.116  In response, Central?s presi-
dent mentioned to Dolk that the harvester was for sale.117  Later,
a salesperson from Central brought together Progressive, Dolk,
and McCormack to discuss the possibility of selling the harvester
113 Cent. Cal. Equip. Co. v. Dolk Tractor Co., 144 Cal. Rptr. 367 (Cal. Ct. App.
1978).
114 Id. at 368.
115 Id.
116 Id.
117 Id.
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The Article 9 Buyer?s Seller Rule 313
to Dolk.118  Although both Dolk and McCormack claimed Cen-
tral authorized the sale, its president denied knowing a sale ever
took place, but more importantly, Central never gave permission
in written form.119  The court held the required authorization
could have only been satisfied by a written release; mere acquies-
cence was insufficient to show that the sale was authorized.120
The court explained that the authorization exception in section 9-
306(2) ?should be found with extreme hesitancy and should gen-
erally be limited to the situation of a prior course of dealing?
where the parties did not require written authorization.121
This opinion shows that authorization is not easy to come by in
the case where written authorization is required to discontinue a
security interest under section 9-306(2).  The effect Dolk has
upon authorization requirements becomes apparent in the con-
text where the goods are subject to the entrustment section in
Article 2.  This connection is developed more thoroughly in the
subsection below.
B. Section 2-403(2) and its Effects upon Security Interests
As a preface to this discussion, White and Summers state that
the cases holding that buyers can fall back on section 2-403(2)
when they cannot properly invoke section 9-307(1) are all in er-
ror.122  Unfortunately, the authors do not elaborate on why they
believe these decisions are in error.  They merely refer to the ap-
parent equivocation between the two examples in section 9-
320(a)?s Comment 3.123
A notable case breaking ranks from section 9-307(1)?s clear
guidelines is Executive Financial Services, Inc. v. Pagel.124  In yet
another factually complicated transaction, Executive Financial
Services (EFS) purchased three tractors from Tri-County, which
was owned by Mohr and Loyd.125  EFS then leased the tractors
118 Id.
119 Id. at 369.
120 Id. at 371.
121 Id.
122 WHITE & SUMMERS, supra note 5, at ? 24-8(c).
123 Id.  The two examples in Comment 3 that White & Summers refer to only
occur in Revised Article 9, not Old Article 9.  Whatever equivocation one might find
within these examples, and what this might have invited courts to do in cases de-
cided under Old Article 9-307(1), is unclear and is no explanation for the opinions
decided under the rules of Old Article 9.
124 Executive Fin. Serv., Inc. v. Pagel, 715 P.2d 381 (Kan. 1986).
125 Id. at 383.
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314 OREGON LAW REVIEW [Vol. 83, 2004]
to Mohr-Loyd Leasing, which was an entity distinct from Tri-
County but owned and operated by Mohr and Loyd.126  On be-
half of Tri-County, Loyd sold all three tractors to third parties.127
It is important to note that when EFS purchased the tractors it
never took possession of them.  Rather, they remained on Tri-
County?s premises at all times; furthermore, the owners never
segregated or marked the tractors from the remainder of its in-
ventory to show that EFS or Mohr-Loyd claimed an interest in
them.128  The issue before the court was whether the third-party
buyers purchased the tractors free of the security interest.
In its discussion, the court correctly held that section 9-307(1)
was not applicable because the seller, Tri-County, did not create
the security interest; rather, Mohr-Loyd Leasing did.129  This pro-
hibited the buyers from taking free under section 9-307(1), so in
turn, they attempted to invoke section 2-403(2) in an effort to
discontinue the perfected security.130  This case presented a
unique set of facts because typically the party entrusting the
goods to a dealer is the debtor that originally purchased the
goods and gave its secured party a superior security interest in
the goods.  However in Pagel, EFS, the secured party, entrusted
the goods, not the debtor, Mohr-Loyd Leasing.131
The Code?s entrustment provision, section 2-403, states:
?Entrusting? includes any delivery and any acquiescence in re-
tention of possession regardless of any condition expressed be-
tween the parties to the delivery or acquiescence and
regardless of whether the procurement of the entrusting or the
possessor?s disposition of the goods have been such as to be
larcenous under the criminal law.132
In this case, the court chose to apply the passive definition of
entrusting, acquiescence in retention, when it held that EFS?s
failure to remove the tractors from Tri-County?s lot had the ef-
fect of entrusting the goods to Tri-County.133  In the proper ap-
plication, this provision states that an entrustment ?of possession
of goods to a merchant who deals in goods of that kind gives him
126 Id.
127 Id.
128 Id.
129 Id. at 385.
130 Id.
131 Id. at 387.
132 U.C.C. ? 2-403(3) (emphasis added).
133 Pagel, 715 P.2d at 387.
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The Article 9 Buyer?s Seller Rule 315
power to transfer all rights of the entruster to a buyer in ordinary
course.?134  In this case, EFS, the secured party, entrusted the
goods to Tri-County, thereby empowering it to transfer all the
rights EFS had in the collateral.  As a secured party, EFS has the
right to authorize the collateral?s disposition free of the security
interest.  In effect, the entrustment to Tri-County put it in the
shoes of the secured party, and consequently the court held that
it could sell the goods under whatever terms it desired.
This interpretation is consistent with a plain reading of section
2-403(2), but the meaning of any statute, especially one in the
Code, should be determined in light of the statute?s intended
purpose.  It is clear that section 2-403(2)?s language tends to indi-
cate that entrustment may discontinue a perfected security inter-
est if the secured party is the entruster, but this is a tenable
interpretation only when section 2-403(2) is read in isolation
from the other sections in Part 4 of Article 2 and Article 9.
The entrustment provision?s more familiar application is where
a true owner of a watch entrusts it to a watch dealer for repair.
Before the watch dealer returns the watch to the true owner, the
watch dealer sells the watch to a buyer in the ordinary course of
business.  In this context the buyer takes title to the watch in vir-
tue of the broad power conveyed to the dealer by the language in
section 2-403(2) because the statute gives the dealer the ?power
to transfer all rights of the entruster to a buyer in ordinary course
of business.?135  In this example, there is no doubt that the buyer
in the ordinary course takes title to the watch, but this does not
mean that the powers an entruster gains for purposes of transfer-
ring title also extend to the powers controlling a security interest.
In Pagel, the court went too far.
When attempting to reconcile the co-existence of two statutes
that yield different results, courts have the duty to reconcile them
and give effect to both; however, where a court cannot, then ?a
specific statute will not be controlled or nullified by a general
one.?136  In considering whether to apply section 2-403(2) in the
context of security interests, a court should first determine if
there are more specific statutes on point.  In the Pagel case there
were.  Section 9-306(2) states that ?a security interest continues
in collateral notwithstanding sale, exchange or other disposition
134 U.C.C. ? 2-403(2).
135 Id.
136 Morton v. Mancari, 417 U.S. 535, 550-51 (1974).
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316 OREGON LAW REVIEW [Vol. 83, 2004]
thereof unless the disposition was authorized by the secured party
in the security agreement.?137  Unfortunately, the Code does not
provide a definition for ?disposition.?  As a result, this Comment
relies upon Black?s Law Dictionary?s definition, which defines it
as the ?act of transferring something to another?s care or posses-
sion.?138  If this definition is put side-by-side with the Code?s def-
inition of ?entrusting? in section 2-403(3), then any delivery in
retention of possession of goods clearly falls within the meaning
or class of acts recognized as a disposition.  Section 9-306(2) op-
erates in the specific context where goods subject to a security
interest are disposed.  One might interpret section 9-306(2) to
operate in the general context of any disposition just as section 2-
403(2)?s general treatment of entrustment.  However, there is a
difference between them because section 9-306(2) specifically re-
fers to dispositions where the collateral is encumbered by a se-
curity interest, and in this specific context, the security interest
continues.
When a person has the power to transfer all rights of the en-
truster, as section 2-403(2) provides, it certainly seems to estab-
lish that this person also has the power to discontinue the
security interest because secured parties have this power.  How-
ever, section 2-403(2) makes no reference to the situation where
the goods disposed are subject to a security interest.  It treats all
dispositions alike, unlike section 9-306(2) which operates in the
specific context where the goods are encumbered.  Section 9-
306(2)?s specificity should urge a court to use it if it conflicts with
section 2-403(2) because in the context of security interests au-
thorization is not achieved by mere acquiescence.
As discussed above, the court in Central California Equipment
Co. v. Dolk Tractor Co. held that mere acquiescence cannot pass
as authorization.139  Consequently, if a secured party entrusts
goods to a person who is in the business of selling goods of the
kind, but the entrustment is achieved via acquiescence, not deliv-
ery, then the entrustment provision cannot be used in the context
of multiple-sales transactions because entrustment?s dual defini-
tion conflicts with the more specific language in Article 9, which
does not allow mere acquiescence to suffice as authorization.  In
137 U.C.C. ? 9-306(2) (emphasis added).
138 BLACK?S LAW  DICTIONARY 484 (7th ed. 1999).
139 Cent. Cal. Equip. Co. v. Dolk Tractor Co., 144 Cal. Rptr. 367, 371 (Cal. Ct.
App. 1978).
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The Article 9 Buyer?s Seller Rule 317
addition to this argument, section 9-306(2)?s lead-in language
clearly states that the effect of other Articles is of no
consequence.140
Just as section 9-201(a) has an exception clause built into it,141
so does section 9-306(2).  The first few words specifically limit
any exceptions to those found in Article 9, not Article 2.  As dis-
cussed above, the broad power a secured party gains from sec-
tion 9-201(a) is also limited by any exception found throughout
the entire Code.142  If one reads section 9-201(a) in isolation, it
appears that section 2-403(2) should have been available to the
buyers in Pagel because the entrustment language appears to
confer this power and section 9-201(a) does not limit the excep-
tions to Article 9 but instead the whole Code.  This is true, but
not after section 9-306(2) reconfirms the superiority of secured
parties in this more specific context.143  Section 9-306(2)?s spe-
cific language controls over section 9-201?s general language, and
more importantly, since authorization is not equated with acqui-
escence, as Dolk held, entrustment should not provide the
sought-after substitute when entrustment amounts to nothing
more than acquiescence.
C. Article 2, Part 4 Was Not Meant to Operate in
the Context of Security Interests
When viewed in its entirety, the Code has two recurring char-
acteristics.  First, in format, each Article is a smaller version of
the entire Code.  That is, if viewed from above, one sees that the
format of the whole Code is duplicated in each Article, its parts,
and ultimately the sections that hold everything together.  For
instance, the rules and definitions in Article 1 are applied
throughout the entire Code.  In some respects, Article 1 is the
first part of the remaining Articles in their treatment of commer-
cial law just as the definitions in section 9-102(a) are the first part
of Article 9 that apply to the remaining parts in that Article?s
treatment of secured transactions.  In both cases, the latter por-
tions have less or sometimes no effect without the former infus-
ing meaning into them. That is, without the former parts,
especially the definition sections, the words in the latter parts
140 See supra note 6 for the lead language of ? 9-306(2).
141 U.C.C. ? 9-201(a).
142 See supra note 22 and accompanying text.
143 WHITE & SUMMERS, supra note 5, ? 24-8.
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318 OREGON LAW REVIEW [Vol. 83, 2004]
would be empty or open to interpretation and ambiguity.  Fortu-
nately, they are not and this format clears up most of the ambigu-
ity with clear definitions and sections that build upon the
preceding sections.
Second, each Article tends to begin with very broad, general,
and absolute rules that are tempered by exceptions in subsequent
sections.  For instance, section 9-201(a) states that the secured
party always wins, unless there are exceptions elsewhere in the
Code.144  Section 3-306 states that a ?person having rights of a
holder in due course takes free of the claim to the instrument.?145
However, section 3-302 limits the broad right a holder in due
course acquires from section 3-306.  When a person interprets the
Code in the context of these two themes, it undoubtedly has an
effect upon the meaning and operation of any section in the
Code.
While considering the effect of entrusting under section 2-
403(2) in regard to secured transactions, the court in Pagel
should have first considered the purpose and meaning of the sec-
tions and sub-sections preceding section 2-403(2) before it inter-
preted what it understood this section to mean in isolation.  That
is, before one attempts to understand any sub-section of section
2-403, she should first consider whether the preceding sections
have any effect upon that section?s interpretation.
One of the changes the Code had upon commercial law was to
move away from the age-old doctrine wherein transfer of owner-
ship was dependent upon the delivery of title from one party to
the next.  For instance, the lead-in language in Part 4 of Article 2
states:
Each provision of this Article with regard to the rights, obliga-
tions and remedies of the seller, the buyer, purchasers or other
third parties applies irrespective of title to the goods except
where the provision refers to such title.  Insofar as situations
are not covered by the other provisions of this Article and
matters concerning title become material the following rules
apply.146
In addition to the lead-in language, section 2-401?s subsections
make this more clear by stating that the title to goods is deemed
to have passed at the time the goods have been identified by con-
144 See supra note 20.
145 U.C.C. ? 3-306.
146 U.C.C. ? 2-401.
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The Article 9 Buyer?s Seller Rule 319
tract,147 or when the buyer takes possession of the goods, even if
the buyer has not yet obtained the actual documents.148  If one
reads all of Article 2?s Part 4 in this context, the interpretation of
subsequent sections would be different than if it were read in
isolation.
For instance, after section 2-401 discusses the requirements for
transfer of ownership, section 2-403(1) starts with a broad rule
that one cannot transfer more than one has legal right to.149  Sec-
tion 2-403(1)?s first sentence more or less restates the old prop-
erty principle, nemo dat qui non habet.150  After the Drafters cast
this broad and powerful rule, they immediately limit its effect in
section 2-403(1)?s second sentence by stating that in certain con-
texts one may transfer more than one has legal right to.151  Sec-
tion 2-403(1) should serve as a warning to those attempting to
transfer ownership.  Not only is transfer of title unnecessary, as
section 2-401 provides, but in some cases ownership may be
transferred when the transferor fails to have the required legal
rights.  It is not possible to interpret section 2-403 to operate in
the context of transferring security interests if it is read along
with section 2-401.  Section 2-403 was created for the transfer of
ownership in a context where title and normal bargains are ab-
sent.  That is, section 2-403(1) begins by limiting a transferor?s
rights to no more than it possesses, but then it makes an excep-
tion for the purpose of facilitating commercial transactions.
For example, the second sentence of section 2-403(1) outlines
the conditions for when a person with voidable title can pass
good title to a good faith purchaser for value.152  That is, it out-
147 U.C.C. ? 2-401(1).
148 Id. ? 2-401(2).
149 The first sentence of ? 2-403(1) states ?[a] purchaser of goods acquires all title
which his transferor had or had power to transfer except that a purchaser of a lim-
ited interest acquires rights only to the extent of the interest purchased.?
150 No one can give that which he does not have. BLACK?S LAW  DICTIONARY 1660
(7th ed. 1999).
151 The second sentence of ? 2-403(1) states:
A person with voidable title has power to transfer a good title to a good
faith purchaser for value.  When goods have been delivered under a trans-
action of purchase the purchaser has such power even though (a) the trans-
feror was deceived as to the identity of the purchaser, or (b) the delivery
was in exchange for a check that was later dishonored, or (c) it was agreed
that the transaction was to be a ?cash-sale,? or (d) the delivery was pro-
cured through fraud punishable as larcenous under the criminal law.
152 Voidable title is transferred when the transferor was deceived as to the identity
of the purchaser, the delivery was in exhange for a check which is later dishonored,
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320 OREGON LAW REVIEW [Vol. 83, 2004]
lines when a person is able to give more than she has legal right
to.  After reading the earlier sections in Part 4 of Article 2, the
reader should interpret the entrustment sub-section in the con-
text of Part 4 as a whole.  If this is done, then it is apparent that
the Drafters? purpose for these sections was to preserve good
title, not to ensure clear title.153  In addition, Professor Hawkland
states:
In a broad sense, section 2-403(2) exemplifies one effort to
?modernize the law governing commercial transactions? in
keeping with the underlying philosophy of the UCC.  Accord-
ingly, when a housewife takes her vacuum cleaner for repairs
to a merchant who also is in the business of selling vacuum
cleaners new and old, the sale by him to a buyer in the ordi-
nary course of business passes a good title to the latter.154
After one looks at the Act as a whole and considers its direct
language and the relevant commentary, it is clear that Article 2?s
Part 4 focuses on the conditions under which good title passes.  If
the Drafters intended for entrustment to discontinue a security
interest, then they would have been more careful and used the
words ?clear title? which means ?[a] title free from any encum-
brances, burdens, or other limitations.?155  At least facially, there
is nothing inconsistent with interpreting section 2-403(2) as the
court did in Pagel, but it is only consistent if section 2-403(2) is
read or interpreted in isolation.  As noted in Section II, the ex-
ceedingly challenging task of applying Article 9 is for one to con-
strue and apply all the operable and relevant Code sections in a
consistent manner.
There are two more factors that give this interpretation more
weight.  First, Old section 9-306(2) states ?[e]xcept where this Ar-
ticle otherwise provides, a security interest continues in collateral
notwithstanding sale, exchange or other disposition thereof un-
less the disposition was authorized by the secured party in the
security agreement or otherwise, and also continues in any iden-
it was agreed that the transaction was to be a ?cash sale,? or the delivery was pro-
cured through fraud punishable as larcenous under the criminal law.  U.C.C. ? 2-
403(1).  Good title is ?[a] title that is legally valid or effective.? BLACK?S LAW  DIC-
TIONARY 1493 (7th ed. 1999).
153 A title free from any encumbrances, burdens, or other limitations. BLACK?S
LAW  DICTIONARY 1493 (7th ed. 1999) (emphasis added).
154 WILLIAM D. HAWKLAND, UNIFORM COMMERCIAL CODE SERIES, ? 2-403:7, at
612 (emphasis added) (quoting U.C.C. ? 1-102(2)(a)).
155 See supra note 153.
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The Article 9 Buyer?s Seller Rule 321
tifiable proceeds including collections received by the debtor.?156
If one intends to find an exception to this rule, then it must be
found in Article 9, not Article 2.157
Second, Article 2 also imposes similar restrictions.  For exam-
ple, in section 2-402(3)(a), the section preceding section 2-403,
the drafters state that nothing in Article 2, which naturally in-
cludes entrusting, shall impair the rights of creditors of the seller
that are governed under the provisions of Article 9.158  If the
Drafters did intend for Part 4, or all of Article 2, to have an effect
upon secured transactions, then why did they not put a conflict
provision in Part 1 of Article 2 just as they did with Articles 3 and
4?159  The Drafters put this provision into Part 4 because they
meant for Part 4 to only affect transfer of ownership, not security
interests.
Of course it is difficult to interpret what the phrase ?creditors
of the seller? means in addition to determining if it is applicable
to transactions like the one in Pagel.  However, in Matteson v.
Harper,160 the Oregon Supreme court invoked this section to
prohibit the discontinuation of the security interest upon the sale
of collateral that was subject to limited resale authorization.  In
Matteson, the debtor transferred the collateral to an auctioneer
for sale when he could no longer make payments.161  After the
secured party was notified, he authorized the auctioneer to make
a sale but only at a specific price.162  The auctioneer sold the col-
lateral for an amount less than the secured party specified.163
The buyer argued that the agreement between the secured credi-
tor and the auctioneer had no effect because entrustment gives
the entrustee all powers of the entruster regardless of any condi-
tion expressed between them.164  The court held that the entire
issue of entrustment was not relevant because section 2-402(3)(a)
states that nothing in Article 2 can impair the rights of creditors
of the seller.165
More recently the Arizona Court of Appeals held that only the
156 U.C.C. ? 9-306(2) (revised 2001) (emphasis added).
157 WHITE & SUMMERS, supra note 5, at ? 24-8(c).
158 U.C.C. ? 2-403(3)(a).
159 See U.C.C. ? 3-102(2) and ? 4-102(1).
160 Matteson v. Harper, 682 P.2d 766, 769 (Or. 1984).
161 Id. at 767.
162 Id. at 768.
163 Id.
164 Id. at 769.
165 Id.  The court held that the auctioneer was one of the seller?s creditors despite
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person granting the security interest to the secured party is a
creditor of the seller, even if the secured party itself entrusts
goods to this party.166  If one considers Matteson, then it is not
clear why the court in Pagel did not recognize Tri-County as one
of EFS?s sellers.  Yes, it was true that EFS extended credit to
Mohr-Loyd Leasing, but Tri-County sold the goods; however, the
same individuals that owned Mohr-Loyd Leasing owned Tri-
County.  In this context, if there is any problem with applying
section 2-402(3)(a), then it is a formal problem, not one of sub-
stance.  Nevertheless, if one considers section 2-402(3)(a) in light
of Article 9?s priority rules, the only consistent interpretation is
that the entrustment power in section 2-403(2) applies only to
transactions that involve equipment, not inventory or consumer
goods, because section 9-307(1) already determines the result
when inventory is the subject matter. This is the rationale
adopted in the Second Circuit.167
D. Bending the Buyer?s Seller Rule Beyond Recognition
The fairly recent Oregon Supreme Court case, Schultz v. Bank
of the West,168 turns the Buyers of Goods Rule on its head, espe-
cially the buyer?s seller element.  In Schultz, the Muirs purchased
a motorhome from a dealer and gave its lender, Bank of the West
(the Bank) a security interest in the vehicle.169  The Bank per-
fected by noting the lien on the title.170  A few years after
purchasing the motorhome, the Muirs brought it to Gateleys, a
motorhome dealer, and had it sell the motorhome and apply the
purchase price to a new motorhome that the Muirs purchased
from Gateleys.171  Gateleys eventually sold the Muirs? old
motorhome to the Schultzes, who were allegedly unaware that
the motorhome was being sold for the Muirs.172  After the sale,
Gateleys failed to satisfy the outstanding debt to the bank and it
there being no formal relationship between them because the auctioneer was acting
as an agent for the debtor who was one of the seller?s creditors. Id. at 769 n.7.
166 Sears Consumer Fin. Corp. v. Thunderbird Prods., 802 P.2d 1032, 1037 (Ariz.
Ct. App. 1990).
167 Aircraft Trading & Servs., Inc. v. Braniff, Inc., 819 F.2d 1227, 1235 (2d Cir.
1987).
168 Schultz v. Bank of the West, 934 P.2d 421 (Or. 1997).
169 Id. at 422.
170 Id.
171 Id.
172 Id.
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The Article 9 Buyer?s Seller Rule 323
later filed for bankruptcy.173  After learning that the Bank had a
security interest in the motorhome, the Schultzes brought an ac-
tion seeking a declaration that they owned the motorhome free
of the Bank?s security interest.174  The trial court granted sum-
mary judgment for the Schultzes but the court of appeals re-
versed, holding that the Bank?s security interest remained in
effect because Gateleys did not create the security interest and
only had the power to transfer title.175  The Oregon Supreme
Court reversed, but in order for it to arrive at this result, it bent
the meaning and operation of section 9-307(1) far beyond any
liberal construction section 1-102 should allow.
The court?s discussion began by stating that the court of ap-
peals erred when it defined ?buyer in the ordinary course of busi-
ness? only in regard to section 9-307(1), and not section 1-
201(9).176  The court?s interpretation of ?buyers in the ordinary
course? focused upon whom the buyer makes its purchase from
in order to invoke the protections of a buyer in the ordinary
course of business.177
The court stressed that section 1-201(9) requires that the buyer
purchase goods ?from a person in the business of selling goods of
that kind,? not that this person must also have title to the
goods.178  This is the crucial step in the court?s determination of
who the seller really was, the Muirs or Gateleys.  In its discussion
the court looked to section 2-106(1), which defines ?sale? as ?the
passing of title from the seller to the buyer for a price.?179  Since
the Muirs are the party that actually passed title, the court held
no other party could be regarded as seller in the context of this
definition.  Consequently, the Schultzes were able to satisfy sec-
tion 1-201(9)?s sub-element, purchasing from a person who is in
the business of selling goods of the kind, because they bought
from Gateleys, a person in the business of selling motorhomes.
The Schultzes were also able to take the motorhome free of the
security interest because the court held that section 2-106(1)
deems the Muirs as the seller, and as such, they created the se-
173 Id.
174 Id.
175 Id.
176 Id. at 424.
177 Id. at 423.
178 Id. (quoting OR. REV. STAT. ? 71.2010(a) (1997)) (alteration in original).
179 U.C.C. ? 2-106(1) (emphasis added).
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324 OREGON LAW REVIEW [Vol. 83, 2004]
curity interest.180  In effect, the Oregon court bifurcates the term
?seller? under section 9-307(1) by letting it refer to Gateleys in-
sofar as the buyer in the ordinary course element is concerned,
but then quickly flips the term around by allowing it to stand for
the Muirs for purposes of the buyer?s seller element.
I applaud the Oregon Supreme Court?s recommendation to
read the Code?s sections together and not in isolation.181  Yet, the
court fails to follow its own recommendation.  For instance, in
Schultz, when the court relies on the definition of ?sale? in sec-
tion 2-106(1) in order for it to apply the term ?seller? to the
Muirs instead of Gateleys, it fails to recognize that Article 2 al-
ready provides a definition for ?seller?: ?[A] person who sells or
contracts to sell goods.?182  The court clearly said that the con-
tracting parties were the Schultzes and Gateleys, and in light of
the definition of ?seller? in section 2-103(1)(d), only Gateleys fit
this definition, not the Muirs.  To do otherwise, the Schultz court
would not only have to apply the word ?seller? to two different
entities, the Muirs and Gateleys, but also ascribe two different
meanings to the word ?seller.?  This is far from ordinary.
Furthermore, the court violates the rule of statutory construc-
tion discussed above.183  If two statutes conflict, then the one that
is more specific controls over the general.  In this case, section 2-
103(1)(d) gives a specific definition of ?seller.?  Nothing is more
specific than a definition and it makes no sense for the court to
not use it, especially when the court conveniently borrows the
term ?seller? from a definition for ?sale? in order to arrive at
what it regarded as the best solution.  The rationale behind the
Schultz opinion relies upon an interpretation that the Drafters
recognized.  That is, not all sellers would have title to the goods
sold.  Consequently, the court states that the Drafters made a
?conscious choice? to use the word ?person? instead of the word
?seller,? but the court gives no authority for this interpretation
other than its ?equitable? construction of section 1-201(9).184
Instead of inserting its own definition for ?seller,? the Schultz
court should have looked to the Code for other reasons to ex-
plain why the Drafters chose ?person? instead of ?seller? when
180 Schultz, 934 P.2d at 423-25.
181 Id. at 424.
182 U.C.C. ? 2-103(1)(d).
183 See supra note 136 and related text.
184 Schultz, 934 P.2d at 423.
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The Article 9 Buyer?s Seller Rule 325
drafting section 1-201(9).  On its face, the format of section 1-
201(9) does not lend itself to use of the word ?seller? because
stylistically it does not fit well in the place of ?person.?  For in-
stance, ?a seller in the business of selling goods of the kind?
would have been a poor wording choice due to the redundancy.
The most natural word choice would have been ?merchant,? not
?person.? However, the Drafters could not use the word
?merchant? because it is a term of art that has a technical defini-
tion in section 2-104(1).  This section defines ?merchant? not
only as ?a person who deals in goods of the kind,? but also one
who by his ?occupation holds himself out as having knowledge or
skill peculiar to the practices or goods involved in the transac-
tion.?185  Had the drafters used ?merchant? instead of ?person?
in section 1-201(9), the result would have widened the scope be-
yond the class of persons they intended to protect.
Nevertheless, the Oregon Supreme Court attempted to rein-
force its interpretation of section 1-201(9)?s without knowledge
sub-element by mistakenly inserting the word ?ownership? into
the section and then interpreting this section to be primarily con-
cerned with ownership rights.  The court stated
the text of [section 1-201(9)] recognizes that a sale to a buyer
in ordinary course may be ?in violation of the ownership rights
. . . of a third party.?  Any ownership rights in a third party
would mean that the ?person in the business? did not have
title to the goods.  Thus, the text of [section 1-201(9)] indicates
that ?person? does not mean ?seller.?186
The court could not have arrived at this interpretation unless it
inserted the word ?ownership? into its strained and inaccurate
quotation of the without knowledge sub-element.  The without
knowledge sub-element actually states, ?[a] person that buys
goods in good faith, without knowledge that the sale violates the
rights of another person in the goods . . . .?187  The court?s inter-
pretation stands up only if this statute were concerned about
harming an owner?s rights.188  The purpose of the without knowl-
edge sub-element not only referred to ?true owners? but to any
party that might have an interest in the goods sold, like a security
interest!
185 U.C.C. ? 2-104(1).
186 Schultz, 934 P.2d at 423 (quoting OR. REV. STAT. ? 71.2010(9) (1997)) (omis-
sion in original).
187 U.C.C. ? 1-201(9).
188 Id.
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326 OREGON LAW REVIEW [Vol. 83, 2004]
The Code contains other indications showing that the Oregon
Supreme Court?s interpretation was not correct.  For instance,
the Drafters chose to use the term ?person? instead of ?seller?
because they provide a technical definition for ?person? just as
they do for ?seller.?  Article 1 defines ?person? as ?an individual
or an organization.?189  The drafters choose to use ?person? be-
cause using ?seller? would not indicate that they intended for it
to include entities such as a ?corporation . . . or any other legal or
commercial entity.?190
Other jurisdictions appear to be in agreement with this inter-
pretation.  In a more recent decision by the Appellate Court of
Illinois, the court used Black?s Law Dictionary?s definition of
seller: ?A person who sells or contracts to sell goods.?191  This
definition references section 2-103(1)(d) as its source.192  The
court held that the seller is not the person who transfers title but
the person who does the actual contracting.193  Consequently, the
Appellate Court of Illinois? treatment of sellers would have
deemed Gateleys to be the seller, not the Muirs.194
In addition, earlier editions of Black?s Law Dictionary show
that the Oregon Supreme Court departed from the well estab-
lished meaning of ?seller.?  In the 1910 edition of Black?s Law
Dictionary, the word ?seller? is defined as ?the party who trans-
fers property in the contract of sale.  The correlative is ?buyer? or
?purchaser.??195  According to these definitions the Schultzes
were ?buyers,? and the correlative ?seller? should have been
Gateleys, thereby preventing the court?s bifurcation of ?seller.?
Of course, there is nothing that requires courts to follow the
meanings used in a particular dictionary, but it is not as if Black?s
Law Dictionary is arbitrarily or carelessly defining words.  If one
looks into its earlier editions, the definitions were taken from
court opinions and the subsequent editions track the Code for
189 U.C.C. ? 1-201(30).
190 U.C.C. ? 1-201(28).
191 BLACK?S LAW  DICTIONARY 1365 (7th ed. 1999).
192 Id.
193 Milledgeville Cmty. Credit Union v. Corn, 716 N.E.2d 864, 867-68 (Ill. App.
Ct. 1999).
194 Id.
195 BLACK?S LAW  DICTIONARY 1069 (2d ed. 1910).  The 1933 edition uses the same
definition. BLACK?S LAW  DICTIONARY 1599 (3d ed. 1933).  The 1968 edition uses the
same definition. BLACK?S LAW  DICTIONARY 1525 (4th ed. 1968).  The 1979 edition is
the point where the definition falls in step with the U.C.C.?s definition in ? 2-103(d).
BLACK?S LAW  DICTIONARY 1220 (5th ed. 1979).
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The Article 9 Buyer?s Seller Rule 327
the definition of ?seller.?  In addition to this etymological argu-
ment, one respected commentator stated that the court?s inter-
pretation of section 9-307(1) and section 1-201(9) was not
warranted.196
When Schultz is read under the rules of Revised Article 9, the
court?s opinion appears to be even less compelling.  That is, if
Schultz had been decided under Revised Article 9, the court
would have had a much more difficult time recognizing the Muirs
as ?sellers.?  In Revised Article 9, the Drafters add a new section
called ?Rights and Title of Consignee With Respect to Creditors
and Purchasers.?197  Subsection (a) states in part that ?the con-
signee is deemed to have rights and title to the goods identical to
those the consignor had or had power to transfer.?198  This provi-
sion would have had a strong effect upon the court?s treatment of
the meaning of the word ?seller.?  That is, section 9-319 would
have prohibited the court from treating the Muirs as a seller, es-
pecially if the interpretation of one section should be consistent
with the others around it.  If the court intended to be consistent,
which is a virtue in most contexts, it would have refrained from
using the definition of ?sale? in section 2-106(1) so that it could
call the Muirs ?sellers? because section 9-319(a) states that
Gateleys would have been the party that actually transferred ti-
tle.199  Unfortunately, section 9-319(a) would not have been dis-
positive in Schultz.
According to Revised Article 9, the Schultz transaction would
not have been subject to this section because a true ?consign-
ment? does not involve goods that were ?consumer goods? im-
mediately before delivery to the consignee.200  Even though
196 Steven O. Weise, a member of the Permanent Editorial Board for the Uniform
Commercial Code, former Chair of the Subcommittee on Secured Transactions of
the American Bar Association Section of Business Law, and the American Bar As-
sociation?s Advisor to the Article 9 Drafting Committee, held that the definitions of
buyer and seller should be correlated when interpreting ? 9-307(1). Steven O.
Weise, U.C.C. Article 9: Personal Property Secured Transactions, 54 BUS. LAW . 307,
331 (1998).
197 U.C.C. ? 9-319.
198 Id. ? 9-319(a).
199 Id.
200 U.C.C. ? 9-102(a)(20) states:
?Consignment? means a transaction, regardless of its form, in which a per-
son delivers goods to a merchant for the purpose of sale and: (A) the
merchant: (i) deals in goods of that kind under a name other than the name
of the person making delivery; (ii) is not an auctioneer; and (iii) is not
generally known by its creditors to be substantially engaged in selling the
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328 OREGON LAW REVIEW [Vol. 83, 2004]
section 9-319(a) would not have directly affected the result in
Schultz, that does not mean this section would not have influ-
enced the court and kept it from recognizing the Muirs as the
seller so that it would preserve some level of consistency when
such a situation did arise.
Had the motorhome merely been used for non-consumer pur-
poses, such as a piece of equipment for a business the Muirs
owned, the statute would have been applicable and, as a result,
would have required the court to recognize Gateleys as title
holders for purposes of protecting secured lenders like Gateleys.
V
REDIRECTING THE HARSH CONSEQUENCES
The Code provides other ways to avoid the harsh results attrib-
uted to the Buyers of Goods Rule by redirecting the burden to
those who are better suited to bear the loss.  For example, section
9-315(c) states that ?a security interest in proceeds is a perfected
security interest if the security interest in the original collateral
was perfected.?201  The secured party?s perfected status is auto-
matic but only lasts for twenty days unless one of three condi-
tions occurs,202 in which case the security continues until it lapses
under section 9-515.203
If this rule had been applied to any of the troublesome multi-
ple-sales transactions discussed above, other than Schultz, then it
would have redirected the priority battle to the secured parties,
not the secured party and the subsequent buyer in the ordinary
course of business.  That is, section 9-315(d) provides that if the
secured party had obtained a perfected security interest in the
proceeds of the collateral, in addition to the collateral alone, then
it would have been deemed to have held a security interest with a
higher priority in the subsequently purchased collateral, even
when the second secured party properly filed its financing
goods of others; (B) with respect to each delivery, the aggregate value of
the goods is $1,000 or more at the time of delivery; (C) the goods are not
consumer goods immediately before delivery; and (D) the transaction does
not create a security interest that secures an obligation.
??Consumer goods? means goods that are used or bought for use primarily for per-
sonal, family, or household purposes.?  U.C.C. ? 9-102(a)(23).
201 U.C.C. ? 9-315(c).
202 U.C.C. ? 9-315(d).
203 U.C.C. ? 9-315(e)(1).
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The Article 9 Buyer?s Seller Rule 329
statement.204
Section 9-315(d) would not have helped the injured buyers in
the ordinary course of business in Schultz because this section
does not provide for automatic continuation of perfection in pro-
ceeds when the original collateral was an automobile.  If the
method for perfecting a security interest in an automobile per-
mitted the secured party to perfect in proceeds too, then this
would have allowed the original secured party in Schultz to fore-
close on the motorhome the Muirs subsequently acquired with
their trade-in.  Again, an innocent party would have to bear the
loss but it would have been a bank which is insured to protect it
from such losses.
CONCLUSION
Pre-Code law had for quite some time protected buyers in the
ordinary course without many exceptions, because the concept
was originally defined only in regard to the buyer, not both the
buyer and seller.205  However, upon the emergence of the Code,
the Drafters concluded that the favorable status of the buyer in
the ordinary course does not always facilitate commercial trans-
actions, especially in situations where the secured party?s rights
are not protected.  The effects of the buyer?s seller rule might be
harsh at times, but the bottom line is that the serial competitions
taking place between secured creditors and buyers in the ordi-
nary course of business require that the secured creditor win.
Without this level of assurance, the facilitation of commercial
transactions would be undermined and this would have a far
greater impact on this purpose than the injuries to a handful of
remote buyers.
In order to understand the meaning and effect of the buyer?s
seller rule, one must see that it was meant to protect secured
parties as well as consumers.  Since more of us tend to fall in the
consumer?s shoes, it is hard to understand why the Drafters pro-
hibit remote buyers from obtaining the same protections other
buyers in the ordinary course of business possess.  In the end,
without secured creditors, dealers would be unable to finance
their inventory.
204 U.C.C. ? 9-322(b).
205 Uniform Trust Receipts Law,  in THE LAW O F  CHATTEL MORTGAGES AND
CONDITIONAL SALES AND TRUST RECEIPTS, ? 635, at 825 (Samuel W. Eager ed.
1941).
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In order to better understand the buyer?s seller rule, one must
read it in conjunction with Article 1, and any other relevant pro-
vision from the Code, because the meaning of a single section
does not become completely clear until the section can be put
side-by-side with every other relevant section and read in a man-
ner that is not only facially consistent, but also consistent with its
intended and underlying purpose.