Sales and Leases | 123
a. Exclusion of One Acquiring Goods in a Bulk Transfer or as Security for or Satisfaction of Debt A person cannot be a buyer in the ordinary course if she acquires goods either (1) in a transfer in bulk or (2) in total or partial satisfaction of, or as security for, any debt for money. [U.C.C. § 1-201(b)(9) (2001).] Example : A wealthy socialite owned a rare and valuable blue diamond. The socialite entrusted the diamond to a diamond merchant for appraisal. While in possession of the diamond, the merchant pledged the diamond as collateral for a $1 million loan from a bank. Sometime later, the bank purchased the diamond from the merchant, in exchange for totally forgiving the $1 million debt and paying an additional $250,000 cash. Here, the bank cannot be a buyer in the ordinary course as to the diamond. The bank acquired the diamond as security for, and ultimately in satisfaction of, the merchant’s $1 million money debt. [ Adapted from Mellen, Inc. v. Biltmore Loan & Jewelry-Scottsdale LLC , 726 Fed.Appx. 635 (9th Cir. 2018).] BulkSale A bulk sale, as defined in Article 6 (which most states have repealed), has been held to be at least one type of bulk transfer for purposes of determining whether one is a buyer in the ordinary course of business. A bulk sale means one of two things. In most cases, it means a sale of more than half the seller’s inventory outside the ordinary course of business, measured by value on the date of the bulk-sale agreement. On that date, the buyer must have notice (or it must be that the buyer would have had notice on that date after reasonable inquiry) that the seller would not continue operating that business or any similar kind of business after the sale. The rules are similar, though slightly adapted for context, if either the sale is by auction or a liquidator conducts the sale on the seller’s behalf. [ See U.C.C. § 6-102(1)(c) (1989); Martin Marietta Corp. v. N.J. Nat’l Bank , 612 F.2d 745 (3d Cir. 1979).] b. Requirement of Possession or Having the Right to Recover the Goods from the Seller To be a buyer in the ordinary course of business, a buyer must either (1) take possession of the goods or (2) have the right to recover the goods from the seller under Article 2. [U.C.C. § 1-201(b)(9) (2001).]
c. Special Rule for One Selling Oil, Gas, or Other Minerals
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