9-320 UCC priority rules question - secured party vs buyer confusion

This is exactly right. 9-320(a) protects ordinary course buyers specifically to keep commerce flowing. Even with a properly filed UCC-1, buyers in ordinary course take free and clear.

Wait, so our perfected lien just disappears if they sell it? That seems harsh for secured parties...

That's helpful context. Our debtor is a manufacturing company that sold some production equipment. They don't typically sell equipment - they use it for manufacturing. So this might not be ordinary course?

Right, if they're not normally in the business of selling that type of equipment, then 9-320(a) wouldn't apply and your security interest should continue.

But you also have to consider 9-320(b) for consumer goods situations, though that doesn't sound relevant here.

Interesting, I hadn't heard of that tool. Does it actually analyze the 9-320 ordinary course factors?

Yeah it cross-references your filing details with transaction documents and flags potential priority issues. Pretty useful for catching things you might miss in a manual review.

The buyer is another business, not a consumer. They bought the equipment for their own operations.

OK so we're looking at business-to-business, which simplifies the 9-320 analysis somewhat.

Don't forget to check if there were any other secured parties involved too. Priority gets messy with multiple liens.

Tell me about it. I've been doing UCC work for years and still have to double-check the priority sections every time.

Right? And good luck getting a straight answer from the SOS office on any of this stuff.

Good point, I was thinking knowledge mattered more than it does. So it really comes down to whether our debtor was in the business of selling this type of equipment.

Exactly. The buyer's knowledge is irrelevant for ordinary course protection under 9-320(a).

Though buyer knowledge can matter for other priority rules, just not this one.

It's specialized manufacturing equipment - CNC machines. The debtor uses them for production, doesn't normally sell equipment.

Yeah that sounds like it wouldn't be ordinary course then. CNC machines aren't something manufacturers typically sell as part of their regular business.

Agreed, unless they were in the business of buying and reselling manufacturing equipment, this doesn't sound like ordinary course.

Our security agreement does have some restrictions on sales without consent. Does that strengthen our position?

It might give you additional remedies against the debtor, but it doesn't necessarily change the 9-320 analysis for the buyer's rights.

How much does it cost? Trying to figure out if it's worth it for smaller firms.

I focus more on the time savings than cost. When you're dealing with priority disputes like this, catching issues early is worth a lot.

That's what I was hoping to hear. So we can demand return of the equipment or payment from the buyer?

You should be able to enforce your security interest against the equipment, yes. Though you'll want to verify the procedural requirements for enforcement in your jurisdiction.

And don't forget you still have remedies against the original debtor for the unauthorized sale.

Good thinking on the documentation. We should be able to show our debtor is clearly a manufacturer, not equipment dealer.

Exactly. The more you can document their actual business operations, the stronger your case that this wasn't ordinary course.

Business registration documents are usually pretty clear about what kind of business they're licensed for too.

Great summary! Just to add one more practical tip - when you're gathering that documentation to prove it wasn't ordinary course, also look at the debtor's historical sales patterns. If they've never sold equipment before or only do so very rarely (like when replacing old equipment), that strengthens your position even more. The frequency of similar sales can be really persuasive evidence in court.