## Facts

- International Harvester Company and International Harvester Credit Corporation financed dealer inventory and held a perfected security interest in three new International Harvester tractors in the possession of an authorized dealer, Barnes Equipment Company.
- Don Glendenning, an experienced farm-equipment trader and former International dealer/salesman, purchased the three new tractors from Barnes in 1971.
- The retail order form was falsified to reflect a $16,000 cash payment plus trade-ins worth about $8,700, although no trade-ins occurred and only $16,000 was paid, well below the tractors’ market value.
- Glendenning knew how International’s floor-plan financing worked and that International retained a security interest in dealer inventory.
- When contacted by an International representative, Glendenning falsely confirmed that he had traded in used tractors.
- Glendenning removed the tractors to Louisiana, sold them, and kept the proceeds.
- International sued Glendenning for conversion, seeking damages equal to the tractors’ value; Glendenning asserted he took free of the security interest as a buyer in the ordinary course of business.

## Issues

1. Whether Glendenning qualified as a buyer in the ordinary course of business who took the tractors free of International’s perfected security interest.
2. Whether the evidence supported a finding that Glendenning acted in “good faith” (honesty in fact) and without knowledge that the sale violated International’s rights.
3. Whether Glendenning’s removal and resale of the tractors constituted conversion against the secured party.

## Decision

- The appellate court reversed the take-nothing judgment for Glendenning and rendered judgment for International.
- Glendenning was not a buyer in the ordinary course of business because the undisputed evidence showed a lack of honesty in fact.
- Because Glendenning did not take free of the security interest, his sale of the tractors and retention of proceeds amounted to conversion as to International’s secured interest.

## Legal Principles

- A buyer in the ordinary course of business takes free of a perfected security interest only if the purchase is made in good faith and without knowledge that the sale violates a third party’s ownership or security rights.
- “Good faith” under the governing U.C.C.-based standard requires honesty in fact in the transaction.
- Participation in falsified sales documentation, paying a conspicuously below-market price under circumstances indicating the paperwork is meant to mislead the secured party, and making false statements to the secured party defeats buyer-in-ordinary-course status.
- Where the evidence conclusively shows absence of good faith, a jury finding of buyer-in-ordinary-course status cannot stand, and the secured party may recover for conversion when the collateral is sold and proceeds are retained.

## Conclusion

The court held that a sophisticated purchaser who knowingly participated in falsifying the sales record and misrepresented trade-ins to the secured creditor did not act with honesty in fact and therefore could not claim buyer-in-ordinary-course protection against a perfected security interest, making him liable for conversion.


International Harvester Co. v. Glendenning, 505 S.W.2d 320 (Tex. Civ. App.—Dallas 1974)