## Facts

- John J. and Clara Lockovich bought a 22-foot-long boat for approximately $32,000 from the Greene County Yacht Club.
- The purchase was made under a retail installment sales contract and security agreement that granted a security interest in the boat to the holder of the contract.
- The Greene County Yacht Club assigned the contract and the related security interest to Gallatin National Bank.
- The Lockoviches resided in Allegheny County, Pennsylvania.
- After the assignment, the Lockoviches defaulted on their payment obligations and filed for Chapter 11 bankruptcy.
- Gallatin sought to enforce its security interest in the boat in the bankruptcy case.
- The bankruptcy court concluded that Gallatin had not perfected its security interest by filing a financing statement in the proper location and therefore treated Gallatin as an unsecured creditor.
- Gallatin appealed to the United States District Court for the Western District of Pennsylvania, arguing that the boat was “consumer goods” and that its purchase-money security interest (PMSI) was perfected without any filing.

## Issues

1. Whether the boat was “consumer goods” under U.C.C. Article 9 because it was bought and used primarily for personal or family recreation.
2. If the boat was consumer goods, whether Gallatin’s PMSI was automatically perfected upon attachment, making filing unnecessary and rendering the bankruptcy court’s unsecured-creditor treatment erroneous.

## Decision

- The district court held that the boat qualified as consumer goods because its primary use was personal and recreational, not business or commercial.
- The court held that, because Gallatin held a PMSI in consumer goods, the security interest was perfected automatically upon attachment under Article 9’s consumer-goods PMSI rule.
- The court ruled that any defect in Gallatin’s financing-statement filing did not matter for perfection, because filing was not required in the first place.
- The district court reversed the bankruptcy court’s determination that Gallatin was an unsecured creditor.

## Legal Principles

- Goods are “consumer goods” when they are used or bought for use primarily for personal, family, or household purposes; classification turns on use or intended use, not the item’s size, cost, design, or other physical attributes.
- A purchase-money security interest in consumer goods is perfected automatically upon attachment, unless a statutory exception applies.
- In bankruptcy, the secured or unsecured status of a creditor claiming an Article 9 security interest depends on whether the interest was perfected under applicable nonbankruptcy law; an automatically perfected PMSI remains perfected without filing.

## Conclusion

The district court concluded that the Lockoviches’ 22-foot pleasure boat was consumer goods based on its personal recreational use. Because Gallatin National Bank held a purchase-money security interest in consumer goods, its interest was perfected automatically upon attachment, so the bank was a perfected secured creditor despite any improper filing and the bankruptcy court’s unsecured-creditor ruling was reversed.


Gallatin National Bank v. Lockovich, 124 B.R. 660 (1991)