## Facts

- Indianapolis Car Exchange, Inc. (ICE) provided floor-plan financing to Top Quality Auto Sales and perfected its security interest by filing a financing statement.
- Top Quality purchased a 2004 Ford truck using ICE’s financing line and held the truck as inventory.
- Top Quality sold the truck to another dealer, Lightly Used Trucks (operated by Bonnie Chrisman), without notifying ICE or remitting payment required under the financing arrangement.
- Lightly then sold the truck to Randall and Christina Alderson as retail purchasers.
- Chrisman and the Aldersons had, at most, vague information that Top Quality had some financial backing connected to ICE, but no specific knowledge of any restriction that made the sale unauthorized.
- After learning it had not been paid, ICE asked the Indiana Bureau of Motor Vehicles (BMV) to place a lien on the truck’s title and refused to release it.
- The Aldersons sued to confirm title and obtain release of the lien; the trial court granted summary judgment for the Aldersons on title and ordered the BMV to release ICE’s lien.

## Issues

1. Whether the Aldersons took title to the truck free of ICE’s perfected security interest, making summary judgment on title proper.
2. Whether the intermediate dealer and the Aldersons qualified as buyers in the ordinary course of business despite awareness of possible financing involvement by ICE.
3. Whether entrustment principles permitted the merchant seller to transfer ICE’s rights to a buyer in the ordinary course, shifting the loss to ICE.

## Decision

- The Court of Appeals of Indiana affirmed summary judgment for the Aldersons.
- The court held the intermediate dealer and the Aldersons were buyers in the ordinary course of business.
- The Aldersons therefore took the truck free of ICE’s perfected security interest.
- The trial court properly ordered the BMV to release ICE’s lien.

## Legal Principles

- A buyer in the ordinary course of business takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows it exists, so long as the buyer does not know the sale violates the secured party’s rights.
- Knowledge that a seller has financing support or a secured lender is not the same as knowledge that a particular sale is unauthorized or in breach of the secured party’s rights.
- When a secured party entrusts goods to a merchant dealing in goods of that kind, the merchant has power to transfer the entruster’s rights to a buyer in the ordinary course.
- In disputes between an innocent downstream buyer and a secured party that enabled the merchant’s possession and sale of inventory, the UCC allocates the loss to the secured party when BIOCOB and entrustment requirements are met.

## Conclusion

The court confirmed that retail purchasers who buy from dealers in ordinary used-car transactions, without knowledge that the sale violates a secured party’s rights, take free of a perfected floor-plan security interest; ICE’s post-sale lien on the title was properly ordered released.


Indianapolis Car Exch., Inc. v. Alderson, 910 N.E.2d 802 (Ind. Ct. App. 2009)