Secured Transactions, Prof. Siebrasse	Ordinary Course Buyer

Ordinary Course Buyer

1.	SP v Third Party
a.	Third Parties fall into two categories
i.	Purchasers and other transferees ( in particular lessees)
(1)	This Section of the Course
ii.	Judgment creditor (j.c.) and related parties i.e. trustee in bankruptcy
(1)	Dealt with in a subsequent Section

2.	SP v Purchaser
a.	Basic rule: Security interest continues in the hands of the buyer...
b.	28(1) Subject to this Act, if collateral is dealt with or otherwise gives rise to proceeds, the security interest
c.	...unless authorized
d.	(a) continues in the collateral unless the secured party expressly or impliedly authorizes the dealing, . . .
e.	Authorization normal in e.g. retail sales of inventory

3.	Unperfected SP v Purchaser
a.	Unperfected SP is vulnerable to P
i.	20(3) An unperfected security interest in collateral is subordinate to the interest of a transferee of the collateral if the transferee
(1)	(a) acquires the interest under a transaction that is not a security agreement,
(2)	(b) gives value, and
(3)	(c) acquires the interest without knowledge of the security interest and before the security interest is perfected.
(a)	Note: Unperfected SP also subordinate to j.c./trustee in bankruptcy: s.20(1),(2)
ii.	Nemo dat is not the law
iii.	Knowledge is relevant
iv.	Unperfected at time of transfer

4.	Unperfected SP v P: Example
a.	(1) D grants security interest to SP1 in couch
i.	SP registers f.s. describing collateral as ‘all present and after acquired property”
b.	(2) D sells chair to P
c.	(3) D grants security interest in chair to SP1
d.	(4) D defaults
i.	What are the priorities in the chair?
ii.	Should P have searched prior to purchase?
e.	Suppose in (2) D grants security interest to SP2
i.	What are the priorities in the chair?

5.	Perfected SP v Purchaser of Consumer Goods
a.	A buyer for value of small ticket consumer goods takes free of any security interest (not just those granted by the seller)
(1)	30(3) A buyer or lessee of goods that are acquired as consumer goods takes free of a perfected or unperfected security interest in the goods if the buyer or lessee
(a)	(a) gave value for the interest acquired, and
(b)	(b) bought or leased the goods without knowledge of the security interest.
ii.	Low value goods only
(1)	30(4) Subsection (3) does not apply to a security interest in
(a)	(b) goods if the purchase price of the goods exceeds one thousand dollars or if the market value of the goods, in the case of a lease, exceeds one thousand dollars.

6.	Perfected SP v Purchaser: Ordinary Course Rule
a.	Ordinary course buyer takes free of interests given by the seller even if dealing not authorized
i.	30(2) A buyer or lessee of goods sold or leased in the ordinary course of business of the seller or lessor takes free of any perfected or unperfected security interest given by the seller or lessor or arising under section 28 or 29, whether or not the buyer or lessee knows of it,...
b.	Why?

7.	Ordinary Course
a.	. . . unless 
i.	30(2). . . unless the buyer or lessee also knows that the sale or lease constitutes a breach of the security agreement under which the security interest was created.

8.	Ordinary Course Rule
a.	Ordinary course rule only clears interests given by the seller
i.	30(2) A buyer or lessee of goods sold or leased in the ordinary course of business of the seller or lessor takes free of any perfected or unperfected security interest given by the seller or lessor or arising under section 28 or 29, whether or not the buyer or lessee knows of it,...
b.	P is still subject to interests granted by remote D

9.	What is ‘Ordinary Course”?
10.	Ordinary Course
a.	In my opinion, a sale, in the ordinary course of business, includes a sale to the public at large, of the type normally made by the vendor in a particular business where the basic business dealings between buyer and seller are carried out under normal terms and consistent with general commercial practice. 
i.	216200
b.	Not ordinary course
i.	Private sales – ie sales between two private parties
ii.	Bulk sales
11.	Inventory
a.	Does the ordinary course rule apply only to inventory?
i.	Should it?
(1)	Camco
b.	Would s. 28(1)(a) of the NB PPSA have aided the individual condominium owners in Camco?

12.	Business of the Seller
a.	Ordinary course of business of the seller
i.	What ordinary sellers do?
ii.	What this seller ordinarily does?
b.	Camco
c.	Note: Ontario Act does not have words “of the seller”

13.	Remote Purchaser

14.	Royal Bank v Wheaton
a.	1) Deschner attempted to protect himself by searching by serial number in both Sask and Alta.  His search did not reveal Royal Bank's security interest.  Is the security interest valid?  Were there any other searches Deschner should have done to protect himself?  Is Royal Bank's interest a secret prior interest?  If so, is it consistent with the policy of the PPSA to allow such interests?

15.	Royal Bank v Wheaton
a.	2) How could Ms Morin have found Royal's interest?  
b.	3) How could Ms Morin have protected herself?
c.	4) Why did the sale from Key West to Stieben not clear Royal's security interest?

16.	Royal Bank v Wheaton
a.	5) Why (apart from good customer relations) was Wheaton Pontiac obliged to give a check to the Royal Bank to allow Ms. Morin to get the Fiero back?
b.	6) Ms. Morin held the car as consumer goods.  Why was she not protected by the rule that a registration in respect of serial numbered consumer goods is valid only if the serial number is included (see NB s. 43(8)(b))?  Would the result have been different if Stieben had held the car as consumer goods?

17.	Royal Bank v Wheaton
a.	7) The sale from Wheaton to Morin was in the ordinary course of business.  Why did the ordinary course rule not protect Morin?
b.	8) Who will ultimately suffer the financial loss in this case?  How could that person have protected themselves?
c.	9) Would the result have been different if Ms. Morin had purchased the car for $800?

18.	Royal Bank v Wheaton
a.	9) In Quebec an ordinary course sale clears all security interests and thus Ms. Morin would have been protected.  Is this result preferable to the outcome in this case under the PPSA?  Explain.

19.	Who is a “buyer”?

20.	Who is a “buyer”?
a.	Buyers are protected in some circumstances
i.	Ordinary course rule: s. 30(2)
ii.	Consumer goods rule: s. 30(3)-(4)
iii.	Unperfected interests: s. 20(3)
b.	Who is a “buyer”?

21.	Camco
a.	Issue 3: Condominium purchasers were not ‘buyers’
i.	Camco sold to Muxlow under conditional sales agreement
(1)	Title did not pass until payment in full
(2)	Payment was not made in full
ii.	Therefore Muxlow never had title
iii.	Therefore Muxlow could not convey title

22.	Camco
a.	I now turn to the appellant's contention that the principle of nemo dat quad non habet entitles it to priority over the respondents. Since title to the appliances was still retained by the appellant at the time of Muxlow's sales to the individual respondents, the appellant submits that s. 30(1) is inapplicable and that the common law doctrine of nemo dat quad non habet prevails. I reject this contention because grafting such a concept on this statutory provision would undermine the purpose of the legislation.
i.	[Passage omitted from materials]

23.	Who is a “buyer”?
a.	Three approaches
i.	Title passes under Sale of Goods Act rules
ii.	‘Functional’ approach
iii.	Implicit definition of sale in PPSA in some cases
b.	Are SGA rules “form over substance”?
c.	In some cases SGA rules conflict with PPSA
i.	Conditional sales
(1)	Title does not pass under SGA
(2)	Consider a security interest in substance under PPSA
(a)	Therefore must be a sale in substance
ii.	In such cases PPSA approach must be used in PPSA issues

24.	Who is a “buyer”?
a.	Three approaches
i.	Title passes under Sale of Goods Act rules
ii.	‘Functional’ approach
iii.	Implicit definition in PPSA
b.	Cuming et al prefer SGA & implicit definitoin approach for consistency in bankruptcy
i.	It is clear law that SGA governs contests as between trustee and buyer

25.	Who is a “buyer”?
a.	1) What is the test set out in Spittlehouse for determining whether a sale has taken place?
b.	2) As a matter of policy, do you prefer the approach in Royal Bank v 216200 Alberta Ltd. ("Royal Bank") or Spittlehouse?

26.	Who is a “buyer”?
a.	3) In Spittlehouse, suppose that instead of selling under a conditional sales agreement, Northshore Marine Inc. had sold the boat to Spittlehouse ‘subject to a security interest" securing the balance of the payment price.  What would the result have been under the 216200 approach?
b.	4) Re Spittlehouse v Northshore Marine, suppose that Northshore Marine had not gone into bankruptcy.  Suppose Spittlehouse defaulted on the purchase agreement with $50,000 of the $555,000 purchase price remaining to be paid, and that the boat is currently worth $700,000.  What are the rights as between Spittlehouse and Northshore Marine?

27.	Who is a “buyer”?
a.	5) In light of your answer to the above questions, is there an alternative route to the same result in Spittlehouse?

28.	Who is a “buyer”?
a.	6) If the approach in Spittlehouse were used on the facts in Royal Bank, what would the results be in the following classes of transactions:
i.	Class Zero: Paid in full, goods in possession of Debtor/Vendor
ii.	Class One: Paid in full, goods not in possession of Debtor/Vendor
iii.	Class Two: Paid in part, goods in possession of Debtor/Vendor
iv.	Class Three: Paid in part, goods not in possession of Debtor/Vendor
v.	Class Four: Cash refunds owing.
b.	How do these results differ from the results in Royal Bank?

29.	Who is a “buyer”?
a.	7) Professor Cuming has argued as follows (Judicial Development of Personal Property Security Law: The Contribution of the Saskatchewan Court of Appeal, (1999) 62 Sask. L. Rev. 19):
i.	There can be no doubt as to the justice of the decision in Spittlehouse as compared to the outcome of the Royal Bank case. It would be unacceptable to conclude that a purchaser who had paid 90% of the purchase price of a specific item should not have the protection of s. 30(2) against the claims of the financer of the inventory of the seller. 
b.	Is it more acceptable to conclude that a purchaser who had paid 90% of the purchase price of a non-specific item should not have the protection of s. 30(2) against the claims of the financer of the inventory of the seller?

30.	Who is a “buyer”?
a.	8) Is there any policy reason for distinguishing between Class Two (Paid in part, goods in possession of Debtor/Vendor) and Class Three (Paid in part, goods not in possession of Debtor/Vendor) in Royal Bank?