## Facts

- Joseph and Marijane Daniel contracted with Don Hofstadter, Inc., a vehicle dealer, to purchase a 1984 Chevrolet van not yet manufactured for about $12,077.55.
- The Daniels paid a substantial down payment by trading in their motor home; the remaining balance under the retail contract was $3,402 due on delivery.
- The contract initially lacked a VIN and described the vehicle generically because the van had not been built.
- Hofstadter used floor-plan financing from the Bank of Hayward; the Bank financed specific vehicles and held security interests in the dealer’s inventory.
- After the van was manufactured and delivered to Hofstadter, the dealer executed a floor-plan note and security agreement to the Bank for $9,905.22 for that specific van, and the van was identified as the unit to fill the Daniels’ order.
- The Bank discovered the dealer had been removing vehicles securing the Bank’s loans without remitting required payments; the Bank called the loans, secured the lot, and took control of the inventory.
- When the Daniels arrived to take delivery, the Bank refused to release the van unless the Daniels paid $9,905.22 (the Bank’s floor-plan amount), even though the Daniels owed only $3,402 under their contract.
- The Daniels borrowed $9,905.22 from the Bank and paid it to obtain the van, then sued to recover the amount paid above the contract balance and related damages.
- The circuit court granted summary judgment to the Bank, reasoning the Bank’s security interest had priority because the Daniels had not taken title.

## Issues

1. When does a retail purchaser become a “buyer in ordinary course of business” under Wis. Stat. § 401.201(9) for purposes of taking free of the seller-created security interest under Wis. Stat. § 409.307(1): upon taking title, or upon identification of the goods to the contract?
2. If the buyer-in-ordinary-course status attached before the lender seized the inventory, did the retail purchasers take priority over the floor-plan lender’s perfected security interest?

## Decision

- The Wisconsin Supreme Court reversed summary judgment for the Bank and remanded.
- The court held that a retail purchaser becomes a buyer in ordinary course of business when the goods are identified to the contract, not when title is transferred.
- Because the van had been identified to the Daniels’ contract before the Bank took control of the dealer’s inventory, the Daniels were buyers in ordinary course and took free of the Bank’s security interest.
- To the extent prior Wisconsin precedent required transfer of title for buyer-in-ordinary-course status, it was overruled as inconsistent with this holding.

## Legal Principles

- Under Wis. Stat. § 409.307(1), a buyer in ordinary course of business takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and even if the buyer knows of its existence, so long as the buyer does not know the sale violates the secured party’s rights.
- “Buyer in ordinary course of business” under Wis. Stat. § 401.201(9) is determined by the substance of a customary retail transaction and the buyer’s good-faith expectations, not by technical title concepts.
- Identification of goods to the contract (U.C.C. § 2-501 concept) gives the buyer a special property interest and supports recognition of buyer-in-ordinary-course status at identification, before delivery or title transfer.
- A floor-plan lender’s practice of controlling titles does not defeat the statutory priority given to buyers in ordinary course over seller-created security interests.

## Conclusion

The court held that the Daniels became buyers in ordinary course when the specific van was identified to their purchase contract, so they took free of the dealer-created floor-plan security interest; the circuit court’s title-based priority ruling was reversed and the case remanded for further proceedings.


Daniel v. Bank of Hayward, 144 Wis. 2d 931, 425 N.W.2d 416 (Wis. 1988)