Asked by Chris Mckibben on Apr 26, 2024
Verified
Cutco Lawn Products Manufacturing Company sells 100 riding lawn mowers to the Smith Hardware Company,a retailer in the same industry.Smith pays for the mowers with a $50,000 loan from the Bass Bank.The Bank takes a security interest in the mowers to secure payment of the loan,and perfects it by filing.Later,Smith sells one of the mowers to Carl,a consumer,who buys in good faith and in the ordinary course of Smith's business.However,Carl knows that the Bank has a security interest in the mowers.Smith defaults on its loan payments,and the Bank moves to repossess all the mowers.Can it repossess the mower sold to Carl?
A) Since the Bank attached its security interest,it may repossess the mower from Carl.
B) Since Carl bought the mower in good faith,the bank may not repossess his mower.
C) Since Carl knew about Bass's security interest,the bank may repossess his mower.
D) Since the mower is in Carl's possession now,the bank has no right over this third party.
Good Faith
The sincere intention to be fair, open, and honest, regardless of the outcome of the interaction.
Ordinary Course
Pertains to regular business activities and operations conducted by an entity under normal circumstances.
Security Interest
A financial mechanism that gives a lender priority over the borrower's assets or property in the case of default.
- Explain the entitlements of a purchaser conducting standard transactions according to the Uniform Commercial Code.
Verified Answer
KH
Kendall HornungApr 27, 2024
Final Answer :
B
Explanation :
A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations)takes free from a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence [UCC 9-320(a)].
Learning Objectives
- Explain the entitlements of a purchaser conducting standard transactions according to the Uniform Commercial Code.