Protections for Consumers Buying Collateral from Other Consumers

Buyer in ordinary course protection does not apply to purchases by consumers from consumers (not sellers of goods of the kind).  1-201(9). As such, 9-315(a)(1) states that the security interest continues and 9-320(a) says the buyer takes subject to the security interest.

9-320(b) may offer protection to the buyer if the security interest is not perfected or automatically perfected under 9-309(a). Under 9-320(b) the buyer takes free of the perfected security interest under the following conditions:

• The goods are consumer goods in the hands of the seller;
• The buyer buys without knowledge of the security interest;
• The buyer buys for value;
• The buyer buys for his own personal, family, or household purposes; and
• The secured party has not filed a financing statement covering the goods prior to the purchase.

This is a very limited protection when the secured party does not perfect or relies on the 9-309(a) security interest. Since most sellers of consumer goods depend on 9-309 automatic perfection of a security interest, this can be an effective protection.