## Facts

- An aircraft dealer entered an inventory financing arrangement with a finance company that took a security interest in all new and used inventory and proceeds, including a specific Piper Arrow aircraft.
- The security agreement authorized the dealer, if not in default, to sell financed inventory in the normal course of business and required the dealer to hold sale proceeds in trust for the finance company.
- The dealer sold the aircraft to a purchaser in a routine retail transaction; the purchaser paid value, acted in good faith, and did not know the sale violated the finance company’s rights.
- The dealer failed to hold or remit the sale proceeds to the finance company, triggering a default under the financing arrangement.
- The finance company asserted superior rights to the aircraft based on its perfected inventory security interest; the purchaser claimed he took free of that interest as a buyer in the ordinary course of business.
- The district court granted summary judgment to the finance company; the purchaser appealed.

## Issues

1. Whether a buyer in the ordinary course of business takes free of a perfected security interest created by the seller in dealer inventory under Pennsylvania’s U.C.C., even if the secured lender financed the inventory.
2. Whether an express contractual authorization allowing the dealer to sell inventory in the normal course causes the secured party’s interest to be displaced in the goods upon sale and to continue only in proceeds.
3. Whether the dealer’s breach of a proceeds/trust-remittance provision can defeat the buyer’s title to the goods after an otherwise ordinary-course sale.

## Decision

- The court of appeals reversed the summary judgment for the finance company.
- The court held the purchaser was a buyer in the ordinary course of business and took the aircraft free of the finance company’s security interest.
- The court directed entry of judgment for the purchaser, confirming title in him and limiting the finance company’s recourse to remedies against the dealer and the proceeds.

## Legal Principles

- Under Pennsylvania’s U.C.C. § 9-307(1), 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, unless the buyer knows the sale violates the secured party’s rights.
- A secured party that authorizes the debtor to sell inventory in the normal course generally cannot reclaim the sold goods from an ordinary-course buyer; the secured party’s interest shifts to the sale proceeds.
- A dealer’s failure to remit proceeds or comply with trust/proceeds covenants constitutes a default giving the secured party remedies against the debtor and proceeds, but it does not retroactively invalidate an authorized ordinary-course sale or defeat the buyer’s title.

## Conclusion

The court held that an ordinary-course purchaser from a dealer took the aircraft free of the dealer-created, perfected inventory security interest, and that the lender’s remedy for the dealer’s nonpayment lay against the dealer and proceeds rather than against the buyer’s title.


Sanders v. M.D. Aircraft Sales, Inc., 575 F.2d 1086 (3d Cir. 1978)