## Facts

- In 1987, Robert W. Muir and June E. Muir bought a motor home.
- In 1988, the Muirs granted Bank of the West, C.B.C. a security interest in the motor home as collateral for a loan, and the bank perfected that security interest.
- In 1992, the Muirs entered a consignment arrangement with Gateleys’ Fairway Motors (Gateleys), a dealer in the business of selling motor homes, under which Gateleys would sell the motor home.
- Gateleys sold the motor home in a routine retail transaction to Howard G. Schultz and Ann C. Schultz, who bought it for personal use and paid value.
- The Schultzes did not know the motor home was being sold on consignment and did not know of the bank’s security interest.
- Gateleys did not remit the sale proceeds to the Muirs and later filed for bankruptcy.
- After learning of the bank’s claim, the Schultzes filed a declaratory judgment action seeking a ruling that they owned the motor home free of the bank’s security interest.
- The trial court granted summary judgment for the Schultzes; the Oregon Court of Appeals reversed; the Oregon Supreme Court allowed review.

## Issues

1. Under ORS 79.3070(1) (UCC § 9-307) and ORS 71.2010(9) (UCC § 1-201(9)), does a consumer who buys a used motor home from a dealer selling it on consignment take free of a prior perfected security interest granted by the consigning owners?

## Decision

- Yes. The Oregon Supreme Court held that the Schultzes were buyers in the ordinary course of business and took the motor home free of the bank’s perfected security interest under ORS 79.3070(1).
- The Oregon Supreme Court reversed the Court of Appeals and reinstated the trial court’s summary judgment for the Schultzes.

## Legal Principles

- ORS 79.3070(1) provides that a “buyer in ordinary course of business” takes free of a security interest “created by the seller,” even if the security interest is perfected and even if the buyer knows of its existence, so long as the buyer does not know the sale violates a third party’s rights.
- ORS 71.2010(9) defines a “buyer in ordinary course of business” as one who buys in good faith, without knowledge that the sale violates another’s ownership rights or security interest, and who buys from a person in the business of selling goods of that kind.
- In a consignment sale through a merchant-dealer, the dealer is treated as the relevant seller for purposes of determining whether the retail purchaser bought in the ordinary course.
- The phrase “security interest created by the seller” in ORS 79.3070(1) is construed to prevent consignment arrangements from defeating buyer-in-ordinary-course protection where the buyer purchases from a dealer that appears to be selling its own inventory.
- Article 9’s allocation of loss in this setting places the risk of an undisclosed lien on the secured creditor rather than on an innocent retail buyer who purchases from a dealer in a standard retail transaction.

## Conclusion

The Oregon Supreme Court held that the Schultzes, who bought a used motor home in good faith from a motor-home dealer that was selling the vehicle on consignment, qualified as buyers in the ordinary course and therefore took the vehicle free of Bank of the West’s prior perfected security interest under ORS 79.3070(1); the court reversed the Court of Appeals and reinstated the trial court’s summary judgment for the Schultzes.


Schultz v. Bank of the West, 934 P.2d 421 (1997)