## Facts

- A retail jeweler sold approximately $39,750 in jewelry to a buyer on credit, using documents stating the jeweler “reserved title,” claimed “ownership,” retained a security interest, and barred the buyer from disposing of or encumbering the jewelry without written consent.
- The buyer paid an initial $30,000 installment with a check drawn on a closed account.
- Within days, the buyer pawned portions of the jewelry to two pawnbrokers in exchange for loans totaling about $9,000; each pawnbroker took physical possession of the jewelry as collateral.
- After criminal charges were filed, police seized the jewelry from the pawnbrokers pursuant to a warrant, and the jewelry was held and used as evidence in the buyer’s criminal case.
- In a return-of-property proceeding within the criminal case, both the jeweler and the pawnbrokers sought possession of the jewelry.
- The circuit court ordered the jewelry returned to the jeweler; the pawnbrokers appealed.

## Issues

1. Whether a circuit court in a criminal return-of-property proceeding may adjudicate competing private claims to seized property.
2. Whether the buyer had sufficient “rights in the collateral” for the pawnbrokers’ security interests to attach, notwithstanding the seller’s reservation-of-title language, contractual anti-transfer terms, and the buyer’s payment by bad check.
3. Whether a security interest perfected by possession remains perfected when the collateral is involuntarily seized by law enforcement and held as evidence.
4. Which claimant had priority under Article 9 where both asserted security interests in the same jewelry.

## Decision

- The appellate court held the circuit court had jurisdiction to decide entitlement to possession between the private claimants in the return-of-property proceeding.
- The court held the pawnbrokers’ security interests attached because the buyer had sufficient rights in the jewelry upon delivery and possession, despite the seller’s title-retention language and the buyer’s bad check.
- The court held the pawnbrokers perfected by possession when they received the jewelry and that perfection continued during police custody following seizure.
- The court held the pawnbrokers had priority because they perfected before the jeweler perfected its security interest.
- The order returning the jewelry to the jeweler was reversed, and the jewelry was to be returned to the pawnbrokers.

## Legal Principles

- Under Article 9, title-retention language by a seller is treated as a reservation of a security interest, not as a complete denial of the buyer’s ability to grant a security interest to third parties.
- For attachment under U.C.C. § 9-203, a debtor’s “rights in the collateral” may be satisfied by delivery and possession plus an obligation to pay, even if the debtor acquired the goods by bad check and breached contractual restrictions on transfer or encumbrance.
- A security interest perfected by possession is not necessarily defeated by involuntary loss of physical custody due to law-enforcement seizure; police custody as evidence does not place the collateral back with the debtor or confer superior Article 9 rights on another claimant.
- Priority between conflicting security interests generally follows the first-to-file-or-perfect rule; earlier perfection by possession prevails over later perfection by another secured creditor.

## Conclusion

The court determined that the pawnbrokers’ possessory security interests validly attached despite the seller’s retained-title paperwork and the buyer’s bad check, remained perfected while the jewelry was in police custody, and therefore had priority over the seller’s later-perfected interest, requiring return of the jewelry to the pawnbrokers.


Nat’l Pawn Brokers Unlimited v. Osterman, Inc., 500 N.W.2d 407 (Wis. Ct. App. 1993)